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Building a Household Budget

Building a Household Budget
“Budget” – a six letter word that can strike fear, anger and frustration in our hearts. But with a few small changes to the way you spend and save your money (a.k.a. your budget), you may find that you have a greater understanding of your disposable income, a sense of satisfaction in your savings and enjoy the money you have on hand because you know that you are putting some away.


Here are six steps to get you started on your own household budget.

  1. Track your costs for a realistic picture of what you spend
It’s difficult to actually know how much you spend without keeping a record of your expenses. Try collecting all of your receipts – from the grocery store, the gas station, pizza deliveries, corner store trips, everything - for a whole month. At the end of the month use the receipts to figure out how much you spent. Sort your expenses by your pay period so that you know how much of each paycheque you’re spending. You can design your own spreadsheet if you want to keep track of your expenses on the computer, or use one of the many free budget spreadsheets available on the Internet.
 
  1. Separate your expenses into groups and use that to build an understanding of where you spend your money
Once you know how much you’re spending, you’ll need to 
determine where that money is going. Group your expenses into categories to get an idea of how much certain activities are costing you. Housing costs (including rent, mortgage, utilities, etc.) should be no more than 30% of your monthly budget. Transportation (car payments, gas, repairs, insurance, bus tickets, etc.) should be no more than 8%. Other things to group together would be necessities (like groceries, phone/cable bills, or whatever is necessary in your house) and miscellaneous expenses (sports and recreation, coffee money, entertainment etc.). Organizing your expenses this way will help you
understand where you’re spending most of your money and find areas where you could cut back and save.
 
  1. Make your budget realistic. Factor in what you’re earning and when your pay periods are.
Now that you know where you’re spending your money, it’s time to determine how much you can afford to spend and how much you want to save. Be realistic when determining your monthly (or weekly) budget; cutting back your spending by 50% might be an option in the short-term, but going into a tight budget cold-turkey without understanding what you’re cutting out might hurt you in the long run. Aim for balance and use moderation; divide your paycheque up by the expenses (which you organized in step 2), your savings and an emergency fund. In total, aim to spend less than 90% of your total household income - the rest should be put toward savings.
 
  1. If you’re paying in person, pay in cash
It’s easy to pay in cards now and deal with the effects of your spending later with the bill, but this can cause a cycle of debt that may be hard to break out of. Use your budget to determine how much cash you will need to spend each week. Put this amount in cash in envelopes labelled by expense group (household, transportation, etc.), and spend that envelope only on that area. Paying in cash forces you to actually see and feel what you are spending, and can help stop you from spending thoughtlessly.
 
  1. Monitor your progress
Once you spend the money from your envelopes, put the receipt and any change back in– this will help you keep track of your expenses over time so you can know whether or not you’re on budget. If you have money left over at the end of the week – congratulations! You can either put it in next week’s envelope or add it to your monthly savings. Continue to review expenses and savings each month so that you know where you’re on track, where you’re ahead and where you can use improvement.
 
  1. Celebrate your success
Make sure you congratulate yourself at each step along the way. Building a budget can seem like a difficult task, but with every step you take you’re setting yourself up for financial success. Even if you’re only saving $20 more a month than you were before, that becomes $240 a year and will grow into thousands over time. Well done!
 
Do you have any budgeting tips that you find particularly helpful? Let us know!
 
This article is for informational purposes only. For personalized financial advice, you should contact a qualified financial advisor.

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