Step 1: List Income, Expenses & Spending
The first step in budgeting is to determine how your net income (commonly known as your after-tax income) measures up against all your expenses and discretionary spending.
Put It In Writing
Getting your income and expenses down in writing helps you manage your money and track your spending behaviour, so you can
Your net income should be easy to list, including only the regular source (or sources) of income you expect to receive over time. Listing your expenses and spending, however, will require close attention.
Track Your Spending
Like many others, you may not know exactly how you spend all your money outside of covering obvious monthly payments for housing, an automobile, regular monthly bills, etc.
This is why you should track your monthly spending - including purchases of little things such as coffees, candy, magazines, and cigarettes - when you first prepare a personal budget.
You should track your spending for at least a month (or ideally for 2 to 3 months) every day at home, at work, and at play.
The most important skill for financial health is the ability to budget.
Learn from a group of credit counsellors, account admins and educators about the importance of budgeting in this video testimonial.
Step 2: Set Saving Goals
Next you will need to put into writing short-term, medium-term, and long-term goals based on your needs, wants, and dreams in life.
Be Realistic
Be realistic in your monthly budget about what you want, need, and can achieve based on real income. Understanding your own spending habits much easier so money saving goals seem like less of a challenge.
Short-term goals might include saving up for a computer or for travel. Medium-term goals might include saving up for a car or a mortgage down payment. Long-term goals might include saving up for a child’s education, or for your retirement.
Just keep in mind that circumstances and goals in life can always change, so you should be prepared to re-evaluate and revise your budget as time goes on.
Credit Canada Expert Tip:
Try to save 10-15% of your net income. If unemployed, try to save 2-3% of net income.
