Budgeting is one of the most powerful ways by which you can take control of your finances. It allows you to see what you’re spending each month and discover ways to save more money. If you’re finding that your debts are accumulating too fast, we recommend creating a budget to start feeling confident about your finances.
What is a budget?
A budget is a plan for how you spend your money. Calculated on a monthly or yearly basis, it adds up all your revenue (such as your pay cheque and investments) against your expenses (such as your mortgage/rent, groceries, car payments, insurance, utilities, and other regular spending).
There are a variety of ways to create a budget: With a good old-fashioned spreadsheet, with an app, or with the help of a financial planner. No matter how you do it, the most important thing is to get started! The sooner you begin budgeting, the more money you’ll have in the bank for what you need and want in life.
Why is budgeting important?
You’ve likely heard the saying, “Knowledge is power.” When you know exactly what money is coming in and out of your bank account, you can make better financial decisions.
Budgeting allows you to zero in on your spending habits and cut unnecessary expenses. (You’ll begin to see how fast that morning coffee adds up!) It also prepares you for any emergencies, such as job loss or illness. Most importantly, a budget allows you to set long-term financial goals, like saving up for a house, home renovations, a vacation, a wedding, your children’s education, a car, recreational vehicles, or your retirement.
What are the benefits of budgeting?
Budgeting keeps you focused on your goals
When you don’t have a financial plan in place, it can be tempting to go out for lunch every day of the week or splurge on clothes that you don’t need. But, a budget keeps your goals top of mind and helps you track your progress. It’s easier to say “no” to unnecessary expenses when you know you’re saving up for a down payment or for a trip to Hawaii.
It prevents overspending
Did you know that the average Canadian had $4,240 in credit card debt in 2019? Since it’s only a matter of tapping a card, credit card spending can get out of control quickly. Eventually, you may struggle to make the monthly minimum payment and begin accumulating interest. A budget helps you avoid the temptation to rack up credit card charges.
Budgeting reduces your debts
With a focus on saving money, budgeting gives you a plan for tackling any debts you might have. You can add up what money you’re owing, such as your mortgage, personal loan, line of credit, or credit card. Be sure to track the principal balance, interest rates, and minimum payments for each debt. Then, you can plan how much money you need to funnel into each account every month.
It helps you save for emergencies
Life is full of surprises. As much as we don’t like to think about it, it’s possible that you may lose your job, get sick, experience damage to your home or car, or go through a divorce. To prepare for these challenges, you can start building an emergency fund. Putting savings into a separate account keeps it out of sight and out of mind. Then, when you do need it, you can cover any costs with less worry.
Budgeting gives you peace of mind
Money is a major source of stress for many of us. In 2019, 39% of Canadians under the age of 65 struggled to keep up with their financial commitments. When you’re unsure if you have enough to pay the bills, it’s hard to feel at peace. By creating a budget, you can feel in control about your finances and sleep better at night. Who doesn’t want that?
Create your personalized debt plan
Do you need to get your debt under control? We’re here to help! Our Licensed Insolvency Trustees (LITs) are trained to recover your finances and in some cases, even reduce your debts. Contact us today to book an appointment.