Budgeting Tips

So you have a big expense coming up. Either or you need a better car, a bigger home or you want to go back to varsity. What do you do? Borrow, borrow, and borrow – right? Well, maybe not.

If you have created a budget, you know exactly how much money you have coming in and how much is going out. You can make some plans concerning those big expenses. But if you don’t have a budget, you probably don’t have a very good picture of your finances. You may also be tempted into borrowing more money. Although, it may be be better to stretch your income as far as you can. It’s definitely better in the long run – for you and for your money – to have a budget.

• Be realistic about your budget

If you have never drawn up a budget before, you need to learn how to create a budget. A good place to start is by looking at your income. By knowing just how much money you’ll have coming in every month, it will be easier to know how much you are spending. The more realistic you are about each of these numbers, the more likely it will be for you to stick to your budget.

• Differentiate between your needs and wants in your budget

If money is tight, differentiating between your needs and wants can help you stay within budget. Your needs come first, and if there’s money left over, only then can you spend money on your wants.

• Include an extra category in your budget

Total up all of your expenses, then take 10% of the total and put it into an “extra” category. This adds even more flexibility to your budget, helping to ensure that if you’ve omitted something from your calculations, you won’t go over budget.

• Include savings as an expense in your budget

Decide on an amount you’d like to save each month and include it as an expense in your budget. Set up a separate savings account and transfer or deposit money into it every month. Your savings can be used for short-term goals (such as a vacation or large-ticket item) or long-term goals (such as varsity tuition or a house). This money can be used in case of an emergency, such as a car repair or medical expense.

• Cut bad habits

Whether its alcohol or tobacco, you know how expensive bad habits can be. If you stop smoking and drinking, put the alcohol and/or cigarette money toward your other expenses. You’ll find that your instalments will come down faster and your health improve in no time: win-win. In the long-term you’ll also save on healthcare expenses, and you may become eligible for lower insurance premiums, which will also save you in the long run.

• Align your budget with your goals and values

Once you’ve completed your budget, see if your money plans aligns with your short-term and long-term goals. Do this after you’ve attempted to live within your budget for a few months. If you are having difficulty adhering to your budget, you may be spending money on things that aren’t  within the goals that you’ve set for yourself.

• Keep all your receipts

Organize all of your statements and receipts by category and file them each month in a folder. This will make it easy to retrieve information if you need to dispute or track your spending history. Organizing as you go along also makes it simple to file your taxes at the end of the year.

• Pay your debt

If you have credit card debt, you may feel like it’s going to take forever to pay it off. But you can get out of debt with a budget and by paying off one card at a time. Ideally, you’d want to start with the one with the highest interest rate and paying as much as you can every month. If you have other accounts, pay the minimum balances on those until you’ve paid off the first card, then choose the next card and pay extra for it while you pay minimums on the others. If you pay only the minimums on all your cards, you’ll be paying a lot more in interest than you may realize.

• Review and re-calculate your budget

A review of your budget every month can help you stay on track with your finances. In essence, a budget is an estimate of money coming in and going out. Take the time to go back and recount what actually happened. Where did you overspend? Where did you save? What can you do differently next month? While it is important to review your budget every month, you’ll also probably need to re-calculate your budget every 3-6 months, or whenever something changes dramatically in your financial life.

• Pay cash for small expenses

Give yourself a daily, weekly, or monthly allocation of cash and use it whenever you can. Every time you pay cash, you’ll be more conscious of what you’re spending than if you paid by credit card or online.

• Forgive yourself for small transgressions

It’s almost impossible to follow a budget 100% of the time, especially if it is your first time. No matter how disciplined you are, you may overspend time and again, so forgive yourself for small errors and get back on track, as soon as possible. Use your budget as a guide to make better financial decisions going forward.

If you need assistance with budgeting or paying off your debt, feel free to contact National Debt Advisors (NDA) today and we will help you with debt advice or debt counselling if you need it.