Make your budget
Since people are, by nature, spenders, they need tools to help them accumulate assets. A budget is one of these tools. Used properly, it can be your best ally for realizing your projects.
Why make a budget?
A budget enables you to structure your spending in the coming year, track your finances, and really see where your money goes. It allows you to:
- Compare your income and your expenditures
- Control your spending, a methodical way of managing your money
- Determine your real cost of living
- Establish your ability to pay off your debts or to save
A realistic budget
Before making a budget, it’s important to clearly define your financial goals and to make a distinction between a need and a want.
|Necessity, obligation, something essential to life: “a roof over my head” is a need, as are clothing, food, work tools and medication.||Wish, desire, something that is not essential: “Vacations” are a want, as are restaurant meals, video games, a health club membership, and designer shoes.|
A simple exercise
Preparing a budget is relatively easy. You have to:
- Estimate your income for the year.
- Plan your expenses for the year.
- Determine your budget surplus or deficit.
- Adjust your spending so that you will have money left over to save in order to achieve your goals.
The expenses column
This is very important. There are generally three types of expenses.
- Fixed or recurring expenses: these are the same each month
- Variable expenses: these change from one month to the next
- Unusual expenses: these are rare or infrequent
In our daily lives, it’s easy to forget that routine expenses, like buying a coffee or eating at a restaurant, can have a major impact on your budget.
Do the math
Keep track of these small purchases and see how much your daily habits really cost you at the end of the year. The results may prompt you to change your routines, better control your spending, and make informed choices when the time comes.
Stick to your budget
To stick to your budget, you have to put in the necessary time and energy, otherwise the best calculations and projections will be for naught.
The key to success
To stay within your budget, you have to:
- Compile your monthly income and expenditures and compare them with your initial budget (keep receipts and invoices).
- Adjust your spending accordingly.
- Review your budget yearly.
Although examining your budget periodically may seem tedious, it’s really worth it because it helps you:
- Accumulate the money you need for a purchase.
- Determine if you have enough of a budget surplus to make payments on a loan (e.g. for the purchase of a home or an automobile).
- Manage the repayment of your debts.
- Assess the amount of superfluous spending.
A balanced budget is essential to good financial health.
Good practices consist in making the necessary adjustments to maintain this balance or, even better, to generate a surplus. This will enable you to gradually pay off your debts and, above all, to save, not to mention establish an emergency fund.
For the unexpected
Your emergency fund should be equivalent to about three months of living expenses, if you already have sufficient disability insurance. It will enable you to cover certain unforeseen expenses, such as home maintenance or car repairs, without having to borrow. It could even tide you over if you lose your job. This reserve fund could be invested in safe investments, and you should be able to withdraw the funds quickly without a penalty.
One good way of building your financial health is by automatic withdrawals. Determine the amount of savings you need, arrange for automatic withdrawals from your bank account, and invest these sums according to the approach decided with your financial advisor. You can spend the rest of your income as you please, as long as you remain within your budget.
The Financial offers you a turnkey solution by giving you access to all the resources you need and by helping you make the best choices.
Come out ahead
Take advantage of the expertise of a team of advisors who will help you:
- Determine your goals.
- Prepare a financial statement and a budget.
- Manage your financial obligations.
- Establish your action plan.
- Constantly monitor your situation.