What is a budget?
A budget is a way to keep track of your money. It’s a summary of your income (how much money comes in) and expenses (how much money goes out) over a certain period of time. It’s also an excellent tool for telling you how much money you have, how much you need, and what you spend your money on. It’s a snapshot of your financial goals and a roadmap to help you manage your money and plan for the future. As you can imagine, this is very important for business owners!
- You can be more aware of what you spend your money on
- You can find areas where you can spend less and save more
- You can take control of your finances and feel more confident
- You can pay bills on time and avoid late fees
- You can reduce your stress or anxiety around money
- You can reduce or pay off your debt
- You can save for long-term goals (e.g., paying for school, funding your business, retirement)
- You can have more money to spend on the things that are important to you!
Income and Expenses
First you need to think about where your money is coming from (your income). Maybe you have a part time job. Maybe you’re running your business already. Maybe you get government benefits or student loans. These are all income sources.
Next, you need to think about what you spend your money on (your expenses). Expenses come in two different types: fixed or variable. What does this mean?
To create a budget, you need to know what your income and your expenses are, and you need to get organized before you begin.
Making Your Own Budget
Step 1: Get Ready
Gather all the papers you need, including:
- Pay stubs
- Stubs from government cheques or direct deposit notices
- Bank and credit card statements
- Loan documents
Step 2: Income Sources
List all your sources of income in a month. Put down how much you get from each source in a month. Then add them up. This is your Total Monthly Income.
Step 3: Expenses
List all your expense categories (e.g., transportation costs, living expenses). Fill in the amounts for the fixed expenses first. These are likely listed on a bill or don’t change each month. Next, do your best to estimate how much you spend in each of your variable categories.
Example: You get a bill each year for $800 in car insurance. Divide $800 by 12. You get $66.67. That is your fixed monthly cost for car insurance.
Example: In a year and a half, you plan to buy a new computer. It will cost $1,000. Divide $1,000 by 18 months. You get $55.56. That is your fixed monthly savings expense for your goal.
Step 4: Do the Math
Add up your Total Monthly Expenses. Subtract this amount from your Total Monthly Income. Do you have money left over? Or are you spending more than you earn?
Step 5: Revise Your Budget
If your expenses are more than your income, think honestly and realistically. Where can you cut back on expenses? Where can you increase your income? Should you change your savings goals?
Budgeting Strategies and Tools
Final Tips for Budgeting
- Remember your SMART goals
- Keep it simple
- Be honest and realistic, and connect your spending to your values
- Remember you might have to make trade-offs or sacrifices
- Budget for the unexpected (because life happens!)
- Budget for larger items that occur once a year
- Include debts and savings in your budget
- Keep accurate records and stay organized
- Plan for change and review your budget regularly
- Be patient – old spending habits can be hard to break and new ones hard to stick to
- Look for support – ask someone you trust to help review your progress
- Try keeping track of every dollar you spend for a month… it might surprise you!
It may sound strange, but try to enjoy budgeting. Set aside some time, put on your favourite music, and make it a fun process. Planning for your future will set you up for success!