How To Budget Effectively

Jeff,

I’m one of those people who spends without thinking. I’ve just always been this way. If I wanted something, I bought it. I never really thought about whether I could afford it…I just thought about whether I wanted it or not. I’ve come to the realization that I don’t know how to budget. I’ve never really made a budget, let alone stick to it. So, I’m hoping that you could help me out with some tips on how to budget your money. Thanks in advance,

Michael S.
Dryden, Ontario

Michael,

The key to any successful endeavor is planning. And that’s basically what budgeting is. It’s a plan for financial success. Setting up a budget is easy…but following it can be tough.

However, from the sounds of it, you seem to have reached a point where you realize this is something you need to do. As with anything in life, it’s important to be motivated to accomplish something. That motivation will keep you on track as you work towards achieving your goals.

So, in order to live debt free and stable financially, just follow my simple budgeting tips –

Where are you at – the first thing you need to do is sit down and figure out where you currently stand. First, start with your spending. Try to figure out how much you spend each month. It may be helpful to separate things into the following categories:

– Savings– Housing
– Transportation– Utilities
– Food– Clothing
– Medical/Health– Personal
– Entertainment– Debts

Now that you’ve done that, the next thing to do is figure out how much money you are bringing it. Write down all your sources of income and the amount you put into the bank each month. After doing this, you’ll be able to easily see the difference between your spending and your saving. And trust me, it may be shocking…

Where you want to be – So, once you’ve figured out your financial picture, you need to think about what changes need to be made. Using the same categories listed above, these are some suggested percentages for how your money should be allocated:

– Savings (15%)– Housing (25%)
– Transportation (15%)– Utilities (10%)
– Food (10%)– Clothing (5%)
– Medical/Health (5%)– Personal (5%)
– Entertainment (5%)– Debts (5%)

If your current spending has some areas that don’t match up at all to the suggested percentages, you should consider those to be problem areas. Those are the things you need to focus on in the next step…

How you are going to get there – This is the part of the budget that makes it a plan. Make a new budget for next month with your spending goals. Look for opportunities to reduce your expenses for things like your cable and cell phone bill. Cut down on your grocery cost by going to a less expensive store for non perishables. Also, look for similar products and services at lower costs from alternative sources. But, above all, the most important thing is to keep track and follow along with your progress.

Like I said, making a budget is easy but following it is difficult. It might be a good idea to get a friend or loved one involved so that you can motivate each other. Make sure to write down and keep track of where your money is going. You want to make your budget something that you consult everyday until it becomes natural. Consolidated Credit has a great resource that can help you – our iPhone app! Keeping track of your spending is the best way to make responsible spending both a habit, and a hobby.

If you want more help on budgeting, visit our Personal Finance section on our website or take a look at our Budgeting Made Easy booklet in PDF form. They are both excellent resources.

Jeffrey Schwartz
Executive Director

Jeffrey Schwartz is the Executive Director of Consolidated Credit Counseling Services of Canada and President of the Credit Association of Greater Toronto (CAGT).

If you have a question about a debt management program or just about finance in general, Jeff is here to help. Send us an email with your question to AskJeff@ConsolidatedCredit.ca. You’ll get the expert advice you need and your question may be featured here on our website.