Keeping track of your finances — what’s going out the door every month versus what you’ve managed to save — is the most practical way to ensure you’re living within your means. It’s especially important to embrace budgeting when inflation rates are high — like right now.
Shockingly, however, less than half of Canadians even bother with a monthly household budget. The benefits are obvious, even though the fairly simple process can feel psychologically draining or intimidating.
Often, the same language we associate with dieting is used when speaking about budgeting. It’s also a foreign concept to anyone whose income is not consistent from month to month. Like dieting, though, finances are entirely dependent on the individual, and the fundamentals of budgeting should help anyone trying to get a better handle on their affairs.
Here’s how to create a monthly household budget:
Figure Out Your Net Income
Net income is something often discussed on celebrity gossip pages, but its definition is more universal. It’s the total amount of money you make, minus taxes and other salary deductions like health plans or retirement contributions. Going by your gross salary alone may lead to overconfidence in just how much money you have. This is obviously more of a hassle for contractors and freelancers but keeping thorough records should help you keep track of inconsistent paycheques.
Tabulate Monthly Expenses
Put the expenses that are largest and regular first. Finances like rent, mortgage, heating, car payments, internet, electricity, and water should always be your first priority. Other expenses, such as groceries and fuel, may be harder to budget from month-to-month. For these, it’s best to estimate. Reviewing your previous month’s bills should give you a sense of how much money you may need.
Be Realistic About Your Goals
Before you even look at the data you’ve collated, it’s wise to have a list of financial goals that you’d like to accomplish, both short- and long-term. Perhaps you finally want to wipe out your college debt or set up an emergency fund. They may not be as specific but setting financial goals can be a great motivator to stay on budget.
Track Your Money
After you’ve made all your estimations and set some goals, the next step involves some trial and error. As some of your expenses may vary, it’s important to keep track of how much you’re actually spending as opposed to how much you plan to spend. From there, you can make the proper adjustments to your spending to match your budget. Review Your Budget
Not everyone’s income stays the same. You may get a raise, or you may get demoted — it’s important in either case to make the appropriate changes to your monthly budget. It’s also helpful just to check your account multiple times a month to see how your finances are doing and remind yourself to stay on budget.
Kenny Hedges | Contributing Writer