Personal Budgeting

Plan a Simple & Realistic Budget

It’s easy. Just follow these 4 simple steps to creating your own personal budget.

Benefits of Budgeting

  • Become aware of your entire financial situation
  • Get a solid grasp on your earnings and expenses
  • See exactly where you spend your money
  • Identify any problem areas
  • Make the changes to improve your financial situation

To help with this process, sign up to download our free budgeting worksheet.

Step 1. Audit your current situation with a 30 Day Spending Plan

Sticking with a budget is hard. It’s even harder if your starting point is based on false expectations. Do you really know where your money goes each pay period? Most people don’t. Denial or just plain memory loss will have a negative effect on your budget planning. Making a budget around false figures is setting yourself up for failure.

This is why we recommend you start with a 30-day spending analysis. What you are trying to estimate here is what your monthly expenses are right now. Be honest and be accurate no matter how bad it looks. 

It’s not hard, you just need to be meticulous and write down everything you spend money on each day, no matter how small. Doing this will give you a good idea of all the little things you spend money on. You’ll learn just how much it costs you to eat out or to fill up the car each week based on your driving patterns. 

For recurring expenses like rent, insurance, loan payments, your cable or phone bill, pull out copies of your credit card statements, utility bills and bank statements for the past year.

At the end of the month transfer all this information into the Current Spending tab on our budgeting worksheet. 

Write down your total income for the month. Be sure to include, pay, child support, alimony etc. You need to include all monthly income to ensure this number is accurate.

Write down your total expenses for the month. Be sure to include anything that you spend money on. Most people remember their rent/mortgage, utilities, credit card bills etc., but they forget the little things can quickly add up. Just two coffees a day at $1.50 each, will total $90 a month! We recommend that you carry a small notepad with you every day or use any smart phone app for a week. Record every time you spend any money and how much you spent. This will help you make your personal budget realistic and effective.

Don’t worry if your cash flow is negative at this point. Knowing this is actually good because it explains why you may find your debt balances growing each month.  You’ll make adjustments to bring your budget into balance in the next step.

Step 2: Adjust your budget and bring it into balance

Take a look at how much income or money you have remaining at the end of the month right now (this is line 99 on our spreadsheet).

Now you need to adjust your budget and bring it into balance which means budgeting to zero.  This might seem odd but zero-based budgeting means that you allocate every dollar you earn to a purpose. If you have money left over at the end of the month, decide where it should go – savings or debt reduction. 

Spending more than you have? An income deficit is actually very common, but a personal budget can help you to correct this. Once you know where you spend your money, you can look at your discretionary expenses (those wants rather than needs) to see where you can cut back, or decide if you can find ways to increase your income. No more using credit to balance your budget!

In our spreadsheet use the Changes column to make all the adjustments you think you can achieve.  Put as much as you think you can afford towards debt repayment, and if debt reduction is not your goal, towards savings.

Step 3: Set actionable goals for debt reduction or savings

Many personal finance experts start with goal setting when doing a budget. The problem with this approach is you don’t know what you can realistically achieve. Deciding to pay $150 a month extra towards your credit card debt or putting $35 a week into an emergency fund is terrific if you have the cash flow. If you don’t you will not be able to achieve your goals and may give up entirely. Over reaching is one of the main reasons why budgets fail.

This is why we suggest you make  specific, measurable, actionable, realistic, trackable goals – SMART goals – after you have figured out how to balance your budget to zero.

Take a look at your new balanced budget. If it calls for reducing your food and grocery budget by $40 a month, figure out how you are going to do that and write in down in the Goals tab. For example, ‘I will stop buying my morning coffee and bring my own’ leads to a savings of $40 each and every month.

Remember, these are your goals and it’s your budget. If you want to buy coffee on the way to work & that fits in your budget then go ahead.  You get to decide how you are going to adjust your lifestyle choices to reach your savings or debt reduction objectives.

If you are making a budget as part of a debt reduction plan to help you get out of debt, you can also download our debt repayment worksheet to help you set debt repayment targets.

If you find that even on a budget you can’t seem to successfully manage your debts, then we’re here to help. One of our trustees would be happy to review all of the different debt relief options with you and help you decide the correct solution to your current financial situation. We can help you to successfully create a debt reduction plan you can afford.

Step 4: Track your progress

You’ve set your budget but success is all about implementation. To ensure you can meet your debt reduction or savings goals, you need to keep track your actual spending against your budget each month. There are plenty of apps that can help you do that but sometimes a simple spreadsheet is best because, by putting everything down in writing, you are aware of where and why you may have gone offside.

Track your actual income and expenses each month using our Tracking tab. If you find yourself not meeting your goals, don’t worry. Revisit your budget and adjust. Don’t give up. If you give up on your budget, then your situation will never get any better.

Don’t like the idea of tracking your spending every month now that you have a good plan in place? No problem.  You can still stay on top of paying your bills and meeting your savings goals by following a set of principals and practices that work for you:

  • Automate what you can. Set up recurring payments and savings to automatically happen weekly, bi-weekly or monthly.
  • Pay your bills as often as you get paid. This is a no-budget approach to budgeting that works for a lot of people who, once they have a plan, don’t like to keep filling in spreadsheets every month.
  • If you are worried that you may overspend by using credit, lower your credit card limits or just leave the cards at home. Make yourself a promise not to use credit to pay for something you can’t afford.
  • Make lots of small micro-payments.  Putting money into your emergency fund or against your credit card balance every week reduces the risk that you will spend that money where you shouldn’t.

6 Things That Sabotage Your Budget

We meet with people every day who have ridden the debt reduction roller coaster. If you want to be, and remain debt free, here are 6 tips to help you keep your budget on track.

  1. Many budgets fail for the same reason diets fail. You’re approaching budgeting as a temporary quick fix rather than a lifestyle change. You need to look at money management as a life long requirement of building better financial choices.
  2. If you put yourself on a severe spending restriction, you are likely to feel deprived. More often than not this leads to blowout spending sprees that you regret later and that destroy your financial goals. The better approach is to develop a balanced spending plan that covers your necessities and debt reduction or saving but allows some room for enjoyment as well.
  3. If you are working at reducing debt, don’t allow the amount of debt you owe to overwhelm you. Forget the past money mistakes and move forward. Set a series of small, attainable goals that, in succession, will eventually lead to successful debt reduction. That may mean paying off one creditor at a time until they are all paid off.
  4. While it’s good to put any extra cash from bonuses, gifts or overtime towards debt or savings, it’s always a better idea to balance your budget based on your lowest expected earning potential. Don’t rely on windfalls as part of your budgeting strategy.
  5. Don’t treat wants as needs. You should be budgeting for extras, not pulling that money from other parts of your budget. Before you make a large purchase, really consider if it’s something essential that you need to buy and make sure it’s planned for in your budget.
  6. Don’t forget to plan for non-monthly expenses like birthday gifts, car maintenance, licensed plate renewals and more. Working these into your budget will make sure you already have the cash on hand for these times. By planning ahead you won’t be forced to use credit.

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Personal BudgetingHoyes, Michalos & Associates Inc. – Consumer Proposal & Licensed Insolvency Trustee
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