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.
A simple exercise
A budget enables you to structure your spending in the coming year, track your finances, and really see where your money goes. 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.
Stick to your budget
Sticking to your budget requires time and energy. You have to:
- Compile your monthly income and expenditures.
- Compare them with your initial budget.
- Adjust your spending accordingly.
- Review your budget yearly.
A beneficial examination
Although examining your budget periodically may seem tedious, it has many benefits. It enables you to:
- 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.
Your emergency fund
It’s important to establish an emergency fund 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.
Your emergency fund should be equivalent to about three months of living expenses, if you already have sufficient disability insurance. This money should be set aside before you accelerate the repayment of your debts or contribute to your RRSP. It would also be preferable to invest this money in very safe investments that allow you to withdraw the funds quickly without a penalty.
Very few people are willing to spend the necessary time tracking their income and their expenditures. If you’re like them, the best way to build your financial health is undoubtedly by means of automatic withdrawals. First, you have to establish the amount of monthly savings you need to achieve your goals. Then, arrange to have this amount withdrawn from your bank account and invested according to the approach determined with your financial advisor. You can spend the rest of your income as you please, as long as you remain within your budget.