What is Budgeting?
Being able to manage your budget is important! It’s a good idea to use a spreadsheet or document that reveals a detailed estimate of how much money you expect to earn (through your earned salary, commission, tips, etc.) and how much you plan to spend over a specific time period.
Contrary to popular belief, budgeting is not challenging. It only takes a few minutes to sit down and jot down your spendings from the month before. Presently, you can find many apps that provide bookkeeping services as a way to help Canadians keep track of their spending. Even better, many large banks include spending alerts that keep track of all your spending overtime. This can help you understand overall what your spending looks like and keep your budget under control.
However, despite budgeting serving its benefits to Canadians, the statistics have shown that almost half of Canadians do not budget. But why manage your budget? Budgeting is a must, especially for those working towards a financial goal in mind. You may want to budget in order to prepare for a big expense such as going on a long vacation, purchasing a new car or new home, early retirement, etc.
Budgeting is proven beneficial to all if it is followed through. Just like dieting for your ideal summer body 2021, budgeting only works if you remain consistent doing things like working out regularly, meal preparations, etc.
The 5 Components to Manage Your Budget
Now, for beginners, budgeting can be intimidating. This is especially true if you believe that you spend more than you earn. By going through the five components of budgeting, you will be able to determine what needs to be adjusted in terms of spending habits. You know what they say, better late than never. So what are you waiting for? Here are the five components to consider when creating your budget.
After Tax Income
This is money you expect to earn after all applicable taxes and deductions. This can be your salary, sales, commission, tips, etc. after tax deduction. This is important to know as it is what you will use to make the majority of payments and purchases.
This is money you expect to pay regularly. This can be recurring bills such as your mortgage payment, cell phone bills, gym membership, entertainment subscriptions, etc. These are bills that you expect to pay each month.
These are expenses that vary each month such as your groceries, your gas for your car, clothing, your electricity bill, etc.
Unexpected and Exceptional Expenses
These are expenses that are unforeseen and exceptional. This can cause a surge in your expenses for the month. These occur unexpectedly or once in a while if they’re planned. These are for example, major home or car repairs, pet emergencies, necessary brand new electronics, purchase of a new home or even a vacation.
The final component is money that is left after you subtract your estimated expenses from your after-tax income. Your savings can be allocated to short- or long-term goals set in place.