If you’re new to budgeting, congratulations on getting started! Learning the basics of budgeting can help you manage your finances, save for the future and ease your financial stress.
Let’s invest some time to learn the basics of budgeting. Your finances will likely thank you later.
Here’s a quick summary of what you’ll be learning:
A budget tracks how much you earn, spend and save over a period of time to help you reach your short- and long-term financial goals. Think of it as a guide that tracks your spending and saving. Following one can give you an understanding of where your money is coming and going so that you can live within your means.
A budget gives you a clearer snapshot of your financial situation. Making one is an important first step in taking control of your finances.
A budget can help you:
Before you sit down to crunch some numbers, ask yourself these important questions:
Think about your financial goals and make saving for those objectives a part of your budget. Examples of short-term goals include paying off your credit card, saving up for minor home improvements and reducing your weekly expenses. Examples of long-term goals include saving up for college or university, paying off all your debts and saving up for a down payment on a home.
Source: Some things to consider when reviewing your financial goals, TD Canada Trust
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No one wants to be caught in a financial pinch when they need money ASAP. You can deal with out-of-nowhere expenses like car repairs or urgent visits to the vet by having an emergency fund.
The Financial Consumer Agency of Canada (FCAC) recommends having enough money in your emergency fund to cover your living expenses for 3 to 6 months. This may seem like a lot of money and depending on your debts and expenses, it may take a while to accumulate that kind of wealth. But if you make saving for an emergency fund a part of your budget, you’ll get there eventually. Just be patient and consistent. Building a nest egg is a marathon, not a sprint.
Source: Setting up an emergency fund, Financial Consumer Agency of Canada.
Every dollar and cent you spend affects your overall budget, so keep track of where your money is going. The FCAC suggests taking note of what you spend for 1 or 2 months by:
Once you understand your needs and wants, you’re ready to start budgeting.
Source: Making a budget, Financial Consumer Agency of Canada.
Building a budget doesn’t have to be complicated. To make it easier, choose a budgeting tool that works best for you. Here are a few suggestions:
, from the Financial Consumer Agency of Canada like the one offered by the Government of CanadaOnce you’ve settled on a budgeting tool, you’re ready to make your first budget. Here’s a step-by-step guide to help you out.
Tally up all of the money coming in after taxes and deductions. This can include money from:
List all your expenses and add up the total. Your spending categories might include:
Subtract your total expenses from your income total to get the difference. This number will reveal a lot about your spending habits. A positive number means you’re spending less than you earn and you can save even more for future needs. If the number is negative, you should consider trimming down your discretionary expenses or finding ways to increase your income.
Things change over time – you may get a raise, move to a new rental unit or have children. Take the time to revisit your budget every few months, make appropriate adjustments if necessary and make sure that you’re still on track to reach your goals.
Source: How to create a budget, TD Canada Trust.
Having a budget gives you a roadmap to financial health. Think of it as a north star that keeps you accountable as you work towards specific financial goals. Remember, creating a budget doesn’t have to be complicated – there are different budgeting tools that can work for you.
This material has been prepared for informational purposes only and is not intended to be a substitute for obtaining advice from a financial professional.
