Budgeting: What is a budget ?
Does the word “BUDGET” bring happy thoughts to your mind? Does it bring restrictive and negative thoughts?
When we talk about a budget, it is much more than a monthly estimate of expenses like your mortgage, electricity, rates or credit card payments.
Basically, it is a one-year financial plan for you and your family that outlines all your spending, whether it is monthly or non monthly.
So things that you pay for only once or twice a year like Holiday, Christmas presents, car repairs, or medical bills, must be included in your budget.
If these things haven’t been included in your budget and planned for accordingly you can find yourself very quickly spending more money than you are bringing in. This will eventually either deplete your savings or create debt.
The goal of budgeting is to ensure that what you spend each month doesn’t exceed your income each month, over a 12-month period.
So, budgeting is an important process for most people regardless of their age or income level. Whether you live from week to week or have extra every month, budgeting can be a valuable tool. With knowledge comes understanding of your own habits. With understanding comes ownership to make changes if necessary or to implement the next steps toward achieving some of your own bigger picture goals.
The first step in budgeting is to figure out where you are.
- What is your present level of spending?
- Where is all your hard earned income actually going?
You may have a good idea but once it is on paper, you may be surprised. Even if you aren’t surprised, you will at least have a visual tool to work with.
So take some time now to write down everything you spend. Get a notebook, your cheque book, credit card statements and bank statements and write down every cent you spent during at least the last 12 months. Go online and download your transactions from your bank accounts if it is easier for you to work that way.
Try to collect the items into groups such as food, utilities, rent/mortgage, fuel, presents, church, etc.
It may take a few hours to gather all this information and compile it, but if you aren’t willing to take the time, then you may never truly understand where your money is going.
When you have done that, you are in a great position to move forward and plan the year(s) ahead.
Remember, you can’t plan for absolutely every little thing which might happen, but you can plan and document your own priorities so that you are better prepared for most things which could happen. And more importantly, what you’d like to make happen.
Let me know how you have gone or if you need some assistance.