A personal budget has a much better chance of success when it takes dreams and desires, and not just necessities, into consideration.
Before you even plan your 2010 budget, write down the elements that give meaning to your life. Is travel vital? Are you happy with your current home (whether renting or owning)? Is owning the latest electronics, clothes, etc., important? Do you want to go back to school? How do you spend time with your friends? Your family? Is charitable giving important to you? Do you want to live in an urban, suburban, or country environment? Now estimate what each goal’s financial cost over the timeline of your choosing.
The next step is figure out your income. This includes wages, family allowances, child tax benefits, GST credits, dividends from stocks, pensions, rental income, etc. Add them all up and divide by 12 for an average monthly income over the year.
Now record your fixed expenses. The mortgage or rent is most people’s biggest fixed expense. Other fixed expenses include insurance, child support, lease payments, tuition fees, property taxes, condo fees, gym memberships, etc. Include monthly savings plans and also add in a monthly amount for each of your dream goals.
What are regular, variable expenses? Utilities, medical, transportation, clothing and grooming fall into this category. Look through past bills for a record of these expenses. Allow for seasonal changes. In Ottawa, for example, fuel bills goes up in the winter for heat and electricity bills might go up in the summer because of air-conditioning.
Finally, there are the recreational expenses -- the “fun” spending. People resist tracking these items because it threatens their fun. Get a receipt for everything. Even a pack of gum. At the end of each day, for a month, put a note on the receipt saying what each item was, and then put it in an envelope. At the end of the 30 days, total the receipts under categories such as coffee & snacks, entertainment, fast food, restaurants, gifts, etc., to discover where your money goes.
If you are lucky, there is more income than expenses. But many people find that they need to trim some expenses in order to balance their budget. At this point, spending and lifestyle choices are required. Do you have a land-line and a cell phone? Get rid of one of them. Are you eating a lot of pricey fast food because you can’t find time to cook? Then buy ready-made meals at the grocery store or hire Chef Julie Broczkowski, owner of The Magic Fridge to deliver home-meals until you have more time. Stop being the one who always picks up the check when you go out with friends.
Impulse spending is tough on budgets. If you know you can’t resist a good sale or that perfect item, have a plan. Put impulse buys into your budget plan as an expense, take the month’s allotment out in cash, and then (and this is the hard part) once you have spent it, that is it till the next month—and no future borrowing, either. The first month or two will be difficult, but the process of judging soon comes in, “I know I have 5 sets of guest towels already—do I really need another set, no matter how gorgeous?”
A budget is the beginning of financial manageability. Once started, the rewards become quickly apparent.
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