Do you have a budget? It is one of the most fundamental steps in making your money work for you.
A personal budget is a basic estimation of the revenue and expenses over a specified period of time. Whether your goal is a down payment for a new house, saving for your child's education, a dream vacation or simply retirement, a budget is the answer to helping you reach your financial goals.
The most resourceful way to plan a budget is to involve others: your spouse or partner and a financial advisor. It satisfies the old cliché, "two heads are better than one" since it will help you get a better handle on your spending. Having someone else involved can also help you stick to your financial planning goals.
How do you start?
The first step involves listing your 'definite' sources of income, which does not include wavering sources of income like tips, tax refunds, etc. The second step is listing your expenses, which may be easy by holding on to your bank statements to identify your trends in spending. Then, you basically compare the totals.
If your income exceeds your spending, you're in good financial standing and can maybe devote more of your money to saving for your desired goal. If you're spending exceeds your income, you need to make some adjustments to evade uncontrollable debt in the future. Make a plan to save more; it's as simple as that!
What do you need? What do you want?
Figure out your needs vs. your wants. We have to eat, but not at the nicest restaurants every day; we want a morning coffee, but it could be a simple cup at home rather than a gourmet coffee; we need clothes, but every single piece does not have to be designer.
A larger expense to consider could be your home: do you need a massive house or would something smaller work better for you and take the heavy burden of huge bills off your chest? We all know those bills show up like clockwork every month! Another consideration is your car: could you trade in your luxury car or large SUV for something that's more economical?
The shoebox method
In some cases, where your budget leaks are not obvious, you can simply start writing down every purchase or exercising 'The Shoebox" method. Basically, you collect all your receipts and place them in a shoebox so that, at the end of the month, you can review them. If you are paying cash for something, write it down on a piece of paper and put it in the box. Once you've tracked all your expenses, you can easily spot the problem areas. You can then commit to re-balancing your budget to better accommodate your expenses.
While these suggestions are more common and work well, every individual is different and you may find a plan that suits you better to stick to their budget. Subsequently, as life progresses and opportunity comes your way, your income may increase. You can have better control of your spending by sticking to a budget and then use the extra money to invest in something your children can take advantage of in the future, like an RESP or something you can simply enjoy in your old age, like a vacation home.
With a little planning, patience, commitment and discipline, a comfortable budget can be within your reach.
You're not alone
If you feel like you need a little help or push in the right direction to get started, you can find an advisor to help you develop your budget and give you more tips on wise spending and family planning.
A little information and help can go a long way toward making your life so much more enjoyable and less stressful by controlling debt and managing your expenses more efficiently.
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