Week 9: Budgeting Made Easy
MONEY SMART CHALLENGE
Money Smart Weekly Conversation Fact: Less than half of Canadians have a budget, yet most people who do have a budget stay within it most of the time. (2014 Canadian Financial Capability Survey)
Research seems to indicate that having a budget is one of the easiest ways to effectively manage your finances and protect yourself from overspending. Creating a budget is also a terrific way to create awareness about how much you actually spend each month.
The Credit Counselling Society put together Budgeting Guidelines for 2017 to help people get a sense of what a reasonable budget might look like.
These guidelines have been created for someone who needs to put together a tight budget. If finances aren’t strained in your household, you can decide to be more relaxed and go beyond the guidelines in areas as long as you’re doing two things:
1) you’re not spending more than you earn, and
2) you’re allocating some money towards savings (Savings are absolutely necessary for life’s many unexpected expenses. Don’t rely on credit for these unexpected expenses. Rely on money you’ve saved).
Breakdown of Cost of Living Budgeting Categories
• Housing: 35%
mortgage / taxes / rent/ insurance
• Utilities: 5%
phone / cell phone / gas / cable / internet / power
• Food: 10 – 20%
groceries / personal care / baby needs
• Transportation: 15 – 20%
bus / taxi / fuel / insurance / maintenance / parking
• Clothing: 3 – 5%
for all members of the family
• Medical: 3%
health care premiums / specialists / over-the-counter
• Personal & Discretionary: 5 – 10%
entertainment / recreation / education / tobacco/alcohol / eating out / gaming / haircuts / hobbies
• Savings: 5 – 10%
Plan to save money for expenses that don’t occur every month, as well as for your future. Then you’ll have a little extra available when you need it.
• Debt Payments: 5 – 15%
Many people find that their budget is quite tight when their monthly debt payments are close to 23% of their net income.
The category in these guidelines that people will most commonly exceed is the Personal & Discretionary expense category. The guidelines suggest you spend 5 – 10% of your income in this category. However, if you happen to have young children in daycare, have high education costs, take nice vacations, tithe, or have hobbies or recreational interests that aren’t cheap, you’ll quickly exceed the suggested maximum for this category. Please know there is nothing wrong with exceeding this limit as long as your budget balances (your expenses don’t exceed your income).
You may also notice that if you spend the maximum amount in every category, you’ll exceed 100% of your income. These guidelines are only recommended ranges. Life is all about choices, but you can’t choose the maximum amount in all spending categories. Spending more in one category may mean that you’ll have to cut back in another category to make your budget balance. If you live in a city where homes are very expensive, you may have to cut back more than an average Canadian would in certain categories in order to afford your higher living costs. In these cases, you will most likely exceed the suggested maximum guidelines for Food or Housing.
The Easiest Way to Use The Guidelines
To make budgeting easier for you and your spouse, family or household, the Credit Counselling Society has created an intelligent, interactive Canadian budget calculator spreadsheet in Excel that you can download and use for free as your personal budget template. ! It’s free and easy to use – even if you’ve never used Excel before. You can also download it for the Mac or Open Office (free open source office software) if you don’t have Excel on your computer.
Begin developing your budget with your income; the money you have available after government deductions from your pay cheque, but before voluntary deductions such as RRSPs, pensions, or other savings.
As you enter your living expenses, the interactive spreadsheet will calculate all the spending guideline numbers for you. It also visually compares your spending in each category to these guidelines so that you can see how you’re doing. As you fill out the budget spreadsheet with your living expenses, it warns you if you are exceeding the guidelines in any area of your budget, and visually shows you how your spending falls into these guidelines. If you have expenses such as high debt payments, childcare, school expenses, or giving, you will need to reduce your spending in other areas to allow for these higher expenses.
It basically guides you through the process of creating a budget and suggests spending amounts for every budgeting category listed above based on your income and family size. When you’re done, it also shows you what your budget looks like in a pie chart divided into the various expense categories.
On top of all this, the budgeting calculator offers you tons of helpful suggestions and tips along the way, so that you can avoid the common pitfalls of the budgeting process.
No access to technology?
Request that a copy of Money Management Basics. Email your name and full mailing address to email@example.com and we will mail you a booklet that you can use to record your expenses and income.
How to Create a Budget With Irregular or Fluctuating Income
If your income fluctuates, creating a budget with irregular income can be challenging. To make things easier, try using one of these 3 strategies for creating a personal budgeting plan for irregular income.
7 Steps to a Budget Made Easy
Is the economic downturn causing you to consider your personal financial situation? You may be worried about losing your job or how much debt you have. Avoid a potential personal financial crisis; get back to basics with a budget you can stick to.
Here’s how to start:
Step 1: Set Realistic Goals
Goals for your money will help you make smart spending choices. Ask yourself: What do I want my finances to look like in one year? Decide what’s important to you and start there.
Step 2: Identify your Income and Expenses
You probably know how much you earn each month – but do you also know where it all goes? Find out by tracking what you’re spending. Spend as you normally would, but for a month, jot down every cent you spend. It’s easy and you might be amazed by what you find out.
Step 3: Separate Needs and Wants
Ask yourself: Do I want this or do I need it? Will spending this money get me closer to my financial goals or further away? Can I live without it? Set clear priorities for yourself and the decisions become easier to make.
Step 4: Design Your Budget
Make sure that you are not spending more than you make. Balance your budget to accommodate everything you need to pay for. To make all this easier, try using the Budget Calculator.
Step 5: Put Your Plan into Action
Match your spending to when you receive your income. Decide ahead of time what you’ll use each pay cheque for. Ask yourself: Have I allocated money for my necessities (housing, food, utilities, transportation, etc.)? Have I put money aside for my debt payments, unexpected expenses, savings and the fun stuff? This will protect you from going into debt further because you won’t rely on credit to pay for your living expenses.
Step 6: Seasonal Expenses
You know that things will “just come up” – school expenses, new shoes, car insurance or an annual membership. Set money aside to pay for these expenses so you can afford them without going into debt.
Step 7: Look Ahead
Getting on track with a budget can take a month or two. You’ve lived all this time without a spending plan, so give yourself time to adjust.
START the MONEY SMART CHALLENGE TODAY by ANSWERING this QUESTION:
Money Smart Week 9 Question: How likely is it that you will develop a budget after reviewing the information this week?
Now, What Do I do?
Email your answer to the Money Smart Week 9 Question and your full name and mailing address to firstname.lastname@example.org
Your name will automatically be entered into a draw for a Samsung Galaxy Tablet. (a $300 Value!)
You can enter your name once each week for a total of 17 chances to win! Answer the question anytime before the end of the Challenge on May 28, 2017 and your name will be entered into the draw for a Samsung Tablet.
So, If you missed answering any of the questions for the previous week, go to those weeks and answer the question(s) now.
(NOTE! Only residents of City of Camrose and Camrose County are eligible for the draw for the Samsung Galaxy Tablet.)