Did you know that only around half of all Canadians report having a budget?
Though budgets can be a great way to manage money, many of us don’t keep track of our finances. Unfortunately, this can lead to feelings of stress and overwhelm, especially when our expenses seem to be out of control. After all, how can you manage your money when your spending is a mystery?
Taking time to set up a budget is a great way to better understand your finances. Here at Tekaloan, we recommend that all of our customers create a budget to reach their financial goals. If you’ve never made one before, here’s what you should know.
Why Should You Create a Budget?
First things first: why is budgeting so important? These spending plans may be simple, but they’re a great way to get your finances under control. Here are a few things a budget can do for you:
Track and Change Your Spending Habits
When you create and maintain a monthly budget, it’s a great way to keep track of where your money is going. Sometimes, reviewing your expenses may surprise you. Whether you’re paying for a subscription you don’t use or spending way too much money eating out instead of cooking, a budget makes your cash flow more transparent.
This makes it easier to adjust your habits. With the right budget, you can establish strict amounts of money you want to spend in each area of your life without overpaying.
Give You Cushioning for Emergencies
No matter your income, it’s crucial to set up an emergency fund as a financial safety net. This fund allows you to recover from things like a job loss, a medical emergency, or unexpected home repairs.
Experts recommend saving around three to six months of your living expenses. If you have a job where layoffs can be unpredictable, you might want to save even more.
Help You Work Toward Financial Goals
When you better manage your money, you make it easier to reach your financial goals. Things like repaying a loan, arranging a wedding, setting up a retirement nest egg, or going back to school can be difficult without saving via a budget.
Not only will proper budgeting help you understand how much to set aside each month, but you can also figure out how long you’ll have to work toward your goal.
How to Create a Budget
Once you’re sold on the idea of budgeting, it’s time to start setting up a budget of your own.
To start, you’ll want to get a sense of your income and expenses. Do this by figuring out your after-tax income.
This amount should be on any paychecks you receive. If you do contract work or freelancing, figuring out your total income can be a little trickier. You’ll also want to include any money you make from part-time jobs or side gigs.
Next, get a sense of how much you usually spend by tracking your expenses for the past month or so. This includes money you spend on any item or service. Going through your bills and bank statements can help with this.
Once you have a list of your expenses, subtract them from the total amount of money you make. If this number is less than zero, you’re spending more money than you make, and proper budgeting can help you start saving.
As you go through your expenses, take note of anything that seems irregular. Are you seeing a lot of unexpected bills? Are you spending more than you can afford on entertainment items like music downloads and movie tickets?
Seeing your current expenses can help you prioritize your spending. Where should your money be going, and which areas of your life are most important to you?
Last, choose a budgeting plan. We’ll get into the types of budgets you can choose from below.
Types of Budgeting Plans
There are several different types of personal budget plans, each with pros and cons. No single plan is the best; what works for one person may not work for another. Though there are countless plans to choose from, here are a few of the most popular:
This beginner-friendly budget means subtracting your monthly expenses from your income, as you did earlier. Anything left over is yours to save or spend as you choose.
With this budget, there’s no need to consider your past expenses. Instead, you’ll tally up your income and decide where each dollar of it will go for the next month, leaving no money on the table.
This popular budget means allocating 50% of your money to necessary expenses, 30% to discretionary purchases, and 20% to debts and savings. An online 50/30/20 budget calculator can help you divide your money based on your income.
Also called “paying yourself first,” this budget prioritizes your personal savings and debts. You’ll put money toward these things first before using the rest to meet your other expenses.
For people who prefer a more tangible approach to budgeting, the envelope method is a safe bet. You’ll cash out all or part of your paycheck each month, separating the cash into envelopes according to how much you need to spend on separate categories of your life. Once you take all of the money out of the envelope you’ve set aside for dining out, for example, you can’t spend more on restaurants.
Get Financial Help From Tekaloan
Using the budgeting tips above can be a great way to understand where your money is going and to have savings when you need them most.
However, it can be hard to prepare for every situation. Even the most financially literate of us can get caught off-guard by an emergency or an unexpected bill!
That’s where Tekaloan can help. When you need a little more than your budget can offer, our simple loans make it easy to get help fast with no credit check. Contact us to learn more or apply online today.