3 steps to creating a budget that works
Creating a budget is an important step in managing your money. A budget is essentially a spending plan for how you will spend your money so you can best meet your needs and goals. Without one, you may find yourself overspending or not saving enough money. A budget can help you identify ways to save for the future, such as for retirement or an emergency.
Creating a budget doesn’t have to be complicated. It can be done on a spreadsheet or even on a piece of paper. All that matters is that you actually create one, so that you know how much money is coming in each month, and how much money you’re spending each month.
Here’s how to create a budget that works for you:
1. Track your income. The first step is to identify your monthly income. Be sure to count all sources of income, which may include employment income, spousal support or disability payments. Write down your total income for the month at the top of your budget.
2. Track your expenses. The next step is to outline all the expenses that you have each month, including rent or mortgage payments, utility bills, food, gas or transportation, clothing, etc. It can be helpful to look through the past three months of bank statements to see what you’ve been spending your money on.
Be sure to budget money for entertainment and activities that you like to do. Try to be as honest as possible with yourself. If you don’t budget enough money for these types of things, it’s likely your budget won’t work. And don’t forget to budget some money for savings! Aim for 20% of your income if possible.
3. Balance your budget. Subtract your expenses from your income to see if your budget balances. If your expenses are less than your income, you’ve successfully created an effective budget! However, if your expenses are higher than your income, you need to find ways to cut back on expenses.
Determine your needs and wants and think about what’s essential and what’s just nice to have. This will be an easy way to identify expenses that you can cut out. If feel that you can’t cut out any expenses, then you can always find ways to increase your income so that your income is higher than your expenses.
Creating a balanced budget is the most important step in managing your money and staying out of debt. Once you create your budget, you should make sure you follow it every month, and update it whenever you need to, such as when your income or expenses change.
For more helpful money management tools and resources, visit www.abcmoneymatters.ca.
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