I was recently was at Vaughan Mills Mall and was behind two women who appeared to be old friends from high school. They must have been in their 30’s because one of them said, “can you believe it has been 15 years since we were in high school?”
After discussing their post secondary schooling and their “little ones” the conversation turned to shopping and how busy the malls were and how many people they had to buy gifts for. One of the women made a joke about how she just puts everything thing on her credit card and hopes she gets a big bonus. It was said in a joking manner and they both laughed, but it got me wondering how many people just spend money without any kind of budget.
Many people are intimidated to make a budget. Often they say that budgeting does not work for them because their income varies or something always comes up and gets the budget out of whack.
A budget is not an exact science. It is an educated estimate of your future income and expenses. You don’t need to be able to tell the future to be good at budgeting. The first thing, you should do is write down everything you spend your money on every month.
Some expense such as rent, mortgage (unless you have a variable rate) and insurance are fixed (the same every month). Other expenses such as groceries, entertainment, utilities are variable expenses. The thing with variable expenses is they go up and down. For instance, chances are you will spend more money on gifts in November and December. So the best thing to do is to estimate how much annually you will spend on gifts. After determining how much you can afford annually convert it into a monthly amount. Sure you will spend most of it at the end of the year but if you have been putting some money away in the months prior, you will ensure the funds are there and will not have to hope for a bonus or rely on credit to cover this expense.
Another thing that is important to budget for is an emergency fund. Most experts agree that you should have set aside enough money to cover three to six months of living expenses in case of an emergency. A separate savings account or a tax free savings account is ideal for an emergency fund. An RRSP is not ideal for an emergency fund because it is not easily accessible and when you make a withdrawal it becomes taxable income. Furthermore, the tax withholding on the withdrawal is often insufficient and creates an income tax debt.
After you have estimated your monthly expenses and your monthly income, you can get it to balance by either cutting your expenses or increasing your income. If you can’t get the budget to balance you may be in financial difficulty. If you have a shortfall every month and you are relying on credit to make up the difference it may be only a matter of time or one significant event such as job loss before you are forced to do something such as bankruptcy.
It may be in your best interest to take control now and be proactive. You can look at a consolidation loan, debt management plan or a consumer proposal as way to get your income and expenses to balance.
If you are having trouble budgeting or have more debt then you can handle, I would be happy to speak to you about your particular set of circumstances and the options available to you. You can reach the Vaughan office at 905-856-2930 or 310-PLAN (7526). You can also send us an email or fill out our online evaluation.