A recent National Payroll Institute study shows that 26 percent of working Canadians are living paycheque-to-paycheque. In another study, only 49% of Canadians report having a budget.
A budget is certainly not a magic bullet, but if you are skating on thin ice financially, budgeting your money can help you get an overall snapshot of where your problems lie and help you reduce your spending.
If you’re new to budgeting, keep reading to learn budgeting tips for beginners.
Why is budgeting important?
Budgeting can often be intimidating, but it’s not complicated. Think of it as a way to eliminate financial stress and reach your goals.
Working within a budget lets you adjust your finances to ensure you can deal with debts, save money and plan for the future. Without a budget, you’re essentially driving blind when managing money.
If this is your first time making a budget, don’t worry. It’s a skill that anyone can learn. Creating and sticking to a budget has helped me eliminate my debts and save money – and you can do it too.
How to budget
Here are some budgeting tips for beginners:
1. Determine your net income
Your net income is the amount of money you have left after taxes and other deductions.
If you are on bi-weekly pay, add the two amounts to get your monthly take-home pay. If you are paid an hourly rate, work out your average weekly hours, how many weeks you will work annually, and subtract taxes and deductions.
For commission-based work, work out the average and use that as a guide.
2. Identify your expenses
Fixed expenses are items you spend money on every month that do not change in cost, such as:
- Rent or mortgage
- Car payments
Then you have variable expenses that can vary from month to month, such as groceries, entertainment, and transportation.
Successful budgeting requires you to organize these expenses into “needs” – such as rent and utilities – and “wants” – such as eating out and entertainment.
If you live paycheque to paycheque, categorizing each purchase lets you identify areas where you may be overspending but also enables you to set aside money for luxuries or savings.
3. Balance your budget
Keeping a surplus balance between your income and expenses allows you to meet your financial goals.
Combine all of your monthly expenses, deduct them from your income and see if you have any leftover money.
Determine what you want to achieve financially, whether paying off debt, saving for a down payment on a house, or building an emergency fund. The goal and timeframe will determine how much you need to save. Aim to save at least 10% of your take-home pay every month.
If you’re over budget or consistently overspending in a specific category, look for ways to cut back. If this isn’t possible, look for ways to increase your income.
Don’t be scared to make adjustments as you go along. It takes some time to put together a budget, and it won’t be perfect at the start.
While a budget doesn’t guarantee financial success, it lets you analyze your spending over time and make changes so you have more money left at the end of the month.
Many people successfully budget, so why not you too?