By facing your financial reality
By Andrea Ratuski
Isn’t It Time you Made a Budget?
I admit it, I’m hopeless. I’ve tried to make a list of income and expenses more than once, but each time I ultimately fail. The sight of a spreadsheet makes me cross-eyed. Just say the word “budget” and I start to cower.
Turns out I’m not alone.
“Some people go through their whole lives and never have a budget,” says Leigh Taylor, president of L.C. Taylor & Co. Ltd.
He believes it’s because of the fear of the unknown. “They don’t know what a budget is, they don’t know how they’re going to put it into effect, live with it and determine if it’s really going to work,” he says.
A budget is basically a financial plan that helps you manage your personal finances.
“You want to be able to get the highest standard of living from the income that you’ve got. And the best way to do that is to find out what your resources are and where the highest priorities are in order to deal with it.”
Should You Approach a Professional?
As a trustee in bankruptcy, Taylor regularly counsels clients on budgets. He says if you’ve already got financial difficulties, you may want to talk to a specialist. He points out that there are many credit counselling organizations around, including credit unions, and easy tools and workbooks online with fill-in-the-blank forms. One such form is available from the government of Canada: http://www.fcac-acfc.gc.ca/eng/pages/home-accueil.aspx
“Once you start out with a standard form you can adjust it so that it fits your circumstances,” he says. “For lots of people, once they start, they realize they can do it themselves.”
Taylor’s advice is to keep it simple. He outlines five basic steps to successful budgeting:
The first step is to determine your financial situation. What does your family own and what do you owe? What is your income and what are your prospects for the future? Are you going to get a raise? Are you in a term position?
Writing down your assets and liabilities will enable you to compare the progress of your budget into the future.
Keep a list of everything you and your family spend. Everything. Keep all of your receipts and make note of your spending on a daily basis. Taylor admits it may take a couple of months to get into the habit. “It’s the little things that can sometimes throw you off.”
He recalls that when he first started keeping track of his own spending, his three cups of coffee a day – mere pocket change – added up to $180 a month.
“That starts to become a budgetary consideration. I never realized that until I kept track of it.”
The same with parking.
He then decided to make coffee at the office for a fraction of the cost and to walk to his appointments instead of driving, putting his savings aside in a special account. Not only was he pleased by the benefits of the increased exercise, but he and his wife were actually able to take a holiday with the money they saved.
“It’s a reward for the extra effort of doing the budget, so a budget is really important,” he says.
Once you know how much money you have coming in and where you’re spending it, you can set some goals for yourself, short term and long term. Do you want to put some money away for an emergency fund? An RRSP? Your child’s education? A holiday?
Here’s where you write down all income and allocate spending in detail. Decide what your priorities are with your “needs” at the top of the list and your “wants” at the bottom. Some expenses are obvious, such as rent and food. But take a closer look. Maybe you could decide to eat out less or cut out junk food.
For those who work on contract or commission it is doubly important to keep track of earnings. He suggests calculating what you’ve earned in the last couple of years, then budgeting for less than what the average is so that you will always have a contingency fund.
A budget is not cast in stone. Situations and priorities change, so it’s important to review a budget to see if it continues to meet your needs.
A Family Affair
Taylor emphasizes that you must work on a budget together with your partner. Not everyone is equipped to budget well, but you have to come up with a system that works for you.
“It’s the biggest hurdle that we have to overcome in a successful relationship.”
Taylor’s best advice is to overcome inertia and just get started. “You’re not going to be successful if you don’t start,” he laughs. “You’ll have a higher standard of living with the same income, a much greater likelihood of achieving your goals and you’ll actually get excited about the benefits of it.”
“If you stick to your budget it gives you a chance to pat yourself on the back. Making yourself feel good about it is a good idea.”
As for me, I am equipped with a handy new workbook, confident that I now have the tools necessary to create a budget and take control of my financial future.