Wednesday, September 16, 2015

Budgeting: What? Why? When? How?

What is budgeting? 

• Creating a plan to spend your money
• Map out your spending plan for 6-12 months
• Finding a pattern in income/expenses
• Forecast savings for trips, purchases etc.
• Fixed Expenses – Items that cost the same amount each month and cannot easily be changed. Example – Mortgage Payment
• Variable Expenses – Daily items like eating out, clothes shopping, drinking lattes, etc. that differ from month to month.

Why should you start budgeting? 

Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt. It will also helps you reach your goals that you have set, ie. things you want to buy, savings you want to have, places you want to travel to. 

When do you need to budget? 

At the beginning of each month is the perfect time to reconcile your spending for the month prior. 

How do you budget? 

Set a budgeting date in your calendar for the beginning of each month. Use your online banking and physical receipts and any other method that works best for you to calculate the total amount you spent in the last month for each expense in you budget. This will allow you to see how much you spend in each category and set a budget for the month to come. When you go over budget in a category you need to make note, highlight it in red, and focus on staying within your budget for the month to come. It might be best to do your monthly budget and reconciliation with a friend, your spouse/partner, or someone you can be accountable to each month to ensure you continue to budget each month.

Tools to Use to Budget

• Mint.com – Track all accounts in one place
• Easy Envelope Budget Aid (Virtual Envelopes)
• Your Online Banking Expense Tracker (RBC)
• Use a simple budgeting spreadsheet (see example below), to track income, expenses and net worth.

*Disclaimer – Mint.com and other online apps may void your credit card or banking insurance as you are sharing your login info with those apps. Check with your bank first.