Step 1: Set an Objective
You need to have a goal in mind before you can begin to manage your budget. When we say, “identify what is important,” we want you to idealize what makes you happy in life and then work towards making those points a reality. For example, if your goals are to
- Live comfortably without overthinking your current financial situation
- Always have a roof over your head
- Travel at least once a year
- Ensure you have money saved for your kid’s education
You may need to take proactive steps to:
- Pay off your credit card on time
- Ensure you put money aside after each paycheque
- Pay into an RESP
- Save money for a significant down payment to reduce mortgage rates
Step 2: Examine Your Incomes & Spending Habits
Every household has a series of expenses and spending habits that need to be monitored and examined before you can make substantial budget plans. Firstly, you should examine the expenses that you cannot live without, and if you come across a cost that could be eliminated, consider it thoroughly. Here is a list of common household expenses:
- Bills
- Child support/ child services (i.e. daycare, recreational clubs, etc.)
- Registered Retirement Plans
- Groceries
- Insurance
Spending habits are a bit trickier to examine because they can be very random and unpredictable. One month you may see five movies at the local theatre, and another month you may decide to go on a savings binge. Here are a few common things that households all over Canada spend unknown amounts of money each month:
- Fast food meals
- Mall trips
- Home renovations
- Online subscriptions (i.e. Netflix, Apple Music, Spotify, etc.)
- Spontaneous gifts
Understand where your money is going and do the math to see where there are opportunities for saving.
Step 3: Differentiate Wants from Needs
This is an incredibly difficult but imperative step in designing your budget because many homeowners have never tried it. However, once you examine and dissect what you’re spending money on and if it makes sense in the long run, you could end up saving hundreds if not thousands of dollars a month. To clarify, wants are something that you desire but do not require on a practical level, while needs are necessities that cannot be done without. For example, many people spend money on name-brand clothing, food and vehicles because they feel they “need” it rather than thinking critically about their budget. Holidays and vacations are major culprits for spending unprecedented amounts of money; it is important to be mindful about spending large amounts of money on gifts and trips and ensure you have a decent sum of money to spend on your everyday expenses to fall back on.
Budgeting your household income is important to ensure you have enough money to spend on the things that matter the most. For more information, contact Mortgage Forces today!
