5 Steps To Create A Monthly Budget For Smarter Saving
1. Put It In Writing
The first step to budgeting is determining how your net income (commonly known as your after-tax income) measures up against all your expenses and spending.
Putting your income and expenses down in writing will help you manage your money and track your spending behaviour, so you can fulfill your goals.
Your net income should be fairly easy to list. Only include regular sources of income you expect to receive over time. Listing your expenses and spending, however, will require a little more work.
2. Track Your Spending
Like so many others, you may not know exactly how you spend all your money outside of covering obvious monthly payments, such as rent or your mortgage, car payments, utilities, etc.
This is why you should track your monthly spending when you first start putting together a personal budget, including small purchases like coffees, snacks, gum, cigarettes, etc.
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.
3. Be Realistic
You'll then need to write down your short, medium and long-term goals based on your needs, wants, and dreams in life.
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 for your retirement or your child’s education.
Be realistic about what you want, need, and can achieve based on your current income. By understanding your spending habits, your money-saving goals will seem like less of a challenge.
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.
4. Set Budget Priorities
Every personal budget needs to have a purpose, otherwise, what's the point of doing all this work?!
For those short on savings, your first budget priority should be to start an emergency fund that can cover 3 to 6 months' worth of expenses. In the event of unforeseen circumstances, such as a job loss or leave of absence, the emergency fund gives you some breathing room to weather out any unwelcome storms.
The good news is that by simply creating a monthly budget, you can open up more opportunities for increased savings because you will be able to identify areas in your spending where you can cut back.
5. Don't Forget to Pay Yourself
As part of the budgeting process, you should also plan to save for all the funthings in life, too. That means paying yourself by establishing a fund for regular savings, which will only be used to meeting your financial life goals.
Every time you receive income, take a percentage and put that money into a savings account, like a Tax-Free Savings Account (TFSA) or some other type of investment. Your bank can help you set up an automatic withdrawal to take money out of one account and put it into another account every time you get paid. Or you can set it up yourself if you have online banking.
Credit Canada Expert Tip:
Try to save 10-15% of your net income. If you're unemployed, try to save 2-3% of any income you receive.
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