In a society where consumption is valued and even encouraged, it's easy to indulge in spending without counting and to postpone the repayment of credit cards and other debts. However, a budget adapted to your situation could be the solution to many financial problems. Here is a list of tips prepared by the Poupart Syndic Inc. team to help you plan a realistic budget so you can get the most out of your money.
Start by making a list of your cash inflows and outflows to see if your expenses are in keeping with your income. To do this, divide these into 3 categories. First, make an inventory of your fixed expenses, that is, those that are incurred every month and that you can't change: rent or mortgage payment, electricity, insurance, telecommunications, etc. In the case of monthly rent or mortgage payment, it should not exceed 35% of your gross income. Next come everyday expenses: groceries, recreational and leisure activities and entertainment, gas, pharmacy, etc. These may be incurred several times a week or several times a month and are the amount of money you need to get through the weeks and months.
And lastly, occasional expenses are those that include clothing, gifts, back-to-school expenses, vacations, restaurant expenses, etc. Poorly planned, these expenses can consume a large part of your income. Be sure to also include in your expenses the amounts set aside for savings and investments, since these are also amounts that reduce your income. Finally, take note of all the money coming into your household: salary, bonuses or freelance contracts.
Once you have completed the list of your expenses, keep your receipts and invoices in order to compile them in a budget calculation tool on a regular basis. To do this, various applications are available to help you keep track of all these amounts. Alternatively, you can also use a simple Excel spreadsheet, which will enable you to easily add up your cash outflows.
Once the month is over, compare your forecasts with the actual situation. This will enable you to analyse the overruns and better identify their causes, so that you can rectify the situation. At the end of the year, it will be easy to draw up an annual report, compiling the total for each month. Since some expenses can be higher depending on the time of year (holidays and vacations, for example), this will give you an opportunity to understand if some periods were more expensive than others and whether the associated costs should be reduced.
No one is sheltered from the unexpected and that is why Poupart Syndic Inc. strongly recommends that you save to ensure you have a safety cushion. This should represent 3-6 months of monthly expenses, in order to avoid serious debt problems in the event of illness, job loss or accident. Set an amount for yourself that could be automatically deducted from your pay cheque and put into a savings account from which you will withdraw funds only in case of emergency. This cash reserve could also be used to cover certain costs, until the insurance company pays your claim, for example.
In addition to the expenses mentioned above, it is also possible to save for certain major life events. If you are planning renovations to your home, try to estimate the costs associated with your project: materials, labour, etc. This will allow you to avoid using credit and in so doing, get into debt at sometimes very high interest rates. Are you planning to get married soon? Start saving 9-12 months before the big day, by estimating the expenses to be incurred: venue rental, caterer, photographer, clothing, flowers, etc. Make sure you have a safety cushion, as there are always unforeseen expenses in a wedding. This will prevent you from having to absorb the debt from this event for too many years to come. If you are expecting a baby, you should know that up to 20% of the family budget could be spent on this event: bedroom furniture, baby carriage, clothes and diapers are just a few of the expenses that will affect your income. Also consider including an amount for an RESP, a very advantageous savings tool that will enable your child to have the funds needed to pay for his or her education.
And lastly, consider saving for your vacation, as it can be very costly due to non-essential expenses and the small luxuries people often indulge in once they get to their destination. It is therefore important to set aside money throughout the year to avoid travelling on credit.
In short, planning a budget adapted to your needs is an essential tool to ensure your financial health. Although it may seem laborious and complex at first, a well-planned budget will help you set limits when you are tempted to incur a non-essential expense. At Poupart Syndic Inc. we can help you in your financial reorganization, so you can get out of debt and keep your finances in good order. Contact us without delay for assistance from our advisors.
Need help? Contact us to get all the answers to your questions and put an end to your worries, in so doing.