Budgeting in its simplest form means spending less than you earn. If you don’t budget, it’s far too easy to lose sight of where your money is going, and unknowingly end up in a deficit position.
Budgeting makes you accountable to yourself. It gives you permission to spend money in the areas you have outlined, and can help restrain spending in areas where you are vulnerable to overspending.
How goal-setting can help with budgeting
The first step in goal-setting is to identify what is important to you. Having a family, leading a certain kind of lifestyle, or becoming debt-free are common goals but you need to define what matters most to you and what you want to accomplish. Be sure to set SMART goals (Specific, Measurable, Achievable, Relevant and Time-Bound). Doing so will make success more likely!
The second step is to calculate your income and your expenses. In terms of your income, include income from all sources as this is the amount you have to work with each month. In terms of your expenses, create two budgets: one for what you THINK you spend each month, and another for what you ACTUALLY spend. Carefully evaluate your spending over the previous three months by reviewing your credit card and bank statements, and categorize everything. If you’re like most people who carry out this exercise, you’ll be surprised by how different these two numbers are! Most people learn quickly that they spend more than they realize.
The third step is to separate your needs from your wants. For most people, needs include housing, transportation, food, debt payments, and savings and investments but you might have others. You might find it interesting that I put savings and investments under needs. This is because if you only invest what is left over at the end of the month, many people find they have nothing left to invest. Choose instead to pay yourself first. Put money aside for your goals each month, be it for an emergency fund, travel, a new car, your retirement, or something else entirely.
And VERY carefully decide whether anything you have listed as a need is, in fact, a want. For example, is eating out something you must do? Is it more important to spend money on eating out than it is to save for a goal? The cost of wants typically adds up very quickly so be careful in your planning to accurately categorize your needs and your wants.
The fourth step is to pull all of this information together and create your budget. Be sure to think short-term AND long-term, and don’t forget to include annual or one-off expenses like property tax, your vehicle registration, and gifts for others. Monitor your budget weekly or monthly, and periodically review and re-evaluate your expenses. By staying on top of your budget, you’ll stay on top of your spending AND your savings!
Budgeting Helps You Succeed
In conclusion, budgeting is a powerful tool that can significantly improve our financial well-being and bring us closer to achieving our financial goals. By creating a budget, we gain a clear understanding of our income, expenses, and savings, enabling us to make informed decisions about our spending habits and prioritize our financial objectives. Budgeting allows us to take control of our money, reduce stress, and eliminate debt while fostering a sense of discipline and accountability. While it may take some time and effort to establish an effective budgeting system, the long-term benefits far outweigh the initial challenges. So, let’s take a proactive approach towards our finances, start budgeting today, and pave the way for a secure and prosperous future. Remember, it’s never too late to take charge of our financial destiny and make our money work for us, not the other way around.
Kimberly Chicoine, CFP, B.Comm.
Financial Planner, Manulife Securities Investment Services Inc.
Insurance Representative, Wiegers Financial and Insurance Planning Services Ltd.
The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.
Mutual funds are offered through Manulife Securities Investment Services Inc. Insurance products and services are offered through Wiegers Financial and Insurance Planning Services Ltd. Banking products and services are offered by referral arrangements through our related company Manulife Bank of Canada. Please confirm with your Advisor which company you are dealing with for each of your products and services.