Become budget aware
Develop savings goals that work for you
By Maureen Halushak
If thinking about budgeting makes you break out in a sweat, you’re not alone. “People think budgeting is painful,” says Laurie Campbell, program manager at the Credit Counselling Service of Toronto.
To make it easier, Campbell prefers to replace the dreaded b word with the term spending plan. “It’s not about how you can budget your money, but how you can spend it more wisely.”
Establish your saving goals
Before creating a spending plan, determine why you’re undertaking the project. “I was getting married, and we needed to buy a house,” says Robin Peixoto, an interior designer in Ottawa.
While a home, vacation, education and retirement are worthwhile savings goals, putting money away for a rainy day or even small tasks — such as a child’s orthodontic work — is reason enough to create a budget.
After you’ve set your mind to saving, examine your current spending habits. Keep a notebook on hand to track your expenses for one month. “You begin to notice your habits and how you fritter money away,” says Judy Lawrence, a budget coach in Cupertino, Calif., and author of The Budget Kit, 4th Edition.
Draw up a spending plan
At the end of the month, organize your expenses into three categories:
- fixed (mortgage payments, insurance, etc.)
- variable (groceries, phone calls, etc.)
- discretionary (dining out, entertainment, etc.)
Once you know where your money is going, determine where it should be going. While there are no rules to allotting your monthly income, Lawrence recommends the following guidelines.
| Percentage allotment | Household expenditures |
| 31 to 40 | Housing (including utilities) |
| 15 | Food |
| 10 to 17 | Transportation |
| 5 to 7 | Insurance |
| 2 to 10 | Savings |
| 15 | Debt payments (excluding mortgages) |
Start by earmarking funds for your fixed and variable expenses; then apportion to the discretionary fund. “You have to have some flexibility built into your budget,” says Campbell. “You can’t deny yourself so much that by Day 3 you quit.”
Organize and access your finances easily
Software programs such as Intuit’s Quicken and Microsoft Money Plus make tracking expenses quick and easy and can provide added motivation. “Microsoft Money Plus shows us where we can be in a few months if we stick to our budget,” says Cathy Taylor Joudrey, a working mother in Calgary.
Peixoto keeps track of monthly bills, income and spending on an Excel spreadsheet. “It’s made things so much more organized,” she says. Whatever system you prefer, password-protect all financial files to prevent others from seeing, changing or deleting them.
You can also turn to the Internet to find online budgeting tools and information.
- Sympatico MSN’s Savings Calculator shows you how long it will take to reach your savings goals and how much you have to contribute.
- Canadian Business Online has a Net Worth Calculator that lets you know how well — or poorly — you’re doing.
- The Government of Canada’s Spending Smarter is home to some great tools including a Daily Spending Calculator that can estimate savings based on skipping small everyday expenses such as lattés.
- Many banks offer online budgeting tools. President’s Choice Financial, for example, offers a cash flow worksheet to figure out where your money is coming from and where it’s going.
Pay down debt
Reducing debt and saving for the future are top priorities when you’re creating a budget. But which comes first? “Pay down your debt as quickly as you can,” says Campbell. “But at the same time, there should be some sort of emergency fund.” She recommends stashing three-to-six months of income into savings in case you unexpectedly lose your job. “It generally takes this long to find another job,” she says.
Review your plan
Your budget isn’t carved in stone. Revisit it monthly to ensure you’re on track, and revise your plan to prepare for any upcoming life events — such as going back to school, moving or buying a new car. The Peixotos were able to realize their home-buying goals after a year of careful spending. Their next step? Revising their budget to reflect the arrival of their first child.
Get help for overspending
Splurges happen. Don’t dwell on them. “Figure out why it happened, where you can get back on track with your expenses and how to refocus on your goals,” says Campbell.
If you’re having trouble following your budget, visit the Credit Counselling Canada web site to find an agency in your area and get personal help developing a realistic, doable plan.
