Budgeting – Tips and Tricks
Develop a Plan:
Involve all family members who depend on the family income – include young children, they don’t need to know all the details but they do need understand costs of living.
Prioritize the things that are most important. Discuss financial priorities with all family members so that everyone understands what the overall goals and priorities are whether they are:
- Saving for retirement;
- Paying off bills;
- Buying a house;
- Children’s education;
- Buying recreational equipment; or
- Just getting control on household spending.
Be Specific and Measurable:
Set your family’s goals, make those goals specific and measurable, for example;
“we will save $3,000 during the next year at the rate of $250 per month for a family vacation to Cuba”.
Make savings more important than leisure expenses. It is better that you have no money left for eating out because you have already put it all into savings than having no money left for savings because you spent it all on junk food.
Wants versus Needs:
We all have wants, for example – “I want to own my own vacation house in Costa Rica”. Some of our wants may not be realistic to our level of income and family responsibility. While some other wants are simply a waste of money.
Not all our needs are real needs, for example – “I need my Timmy’s” – that is simply not a real “need”. Let’s face it, I can live without buying a coffee on the way to work every day!
We have all kinds of choices for spending money. If I chose to buy one medium cup of coffee and one muffin each day on the way to work, that would cost me $3.16 per day, $96.12 per month or $1,153.00 per year – and that is a lot of money for coffee and a muffin. I could spend the same amount for an all-expenses paid trip to the Caribbean and enjoy some February sunshine.
We must pay taxes on all income and I have to pay taxes on my income before I can spend it. Let’s assume that I will pay 20% of my total salary on income tax, CPP and EI contributions. Based on the Canadian median income of $27,600.00 I would be earning about $13.27 per hour. In other words, I would have to work for 104 hours or two and a half weeks just to earn enough money to pay my yearly coffee bill.
There is nothing wrong with using money for “reward” or “entitlement” spending, but there is something wrong with not knowing or not realizing what it costs.
Develop good habits for shopping like clipping and saving coupons or using smart phone price comparing apps. Don’t go grocery shopping when you are hungry. Check the delivery cycle at your local grocery store for food products and produce at your grocery store to become more aware of the relationship between delivery cycles and specials.
Financial advisers push formulas like “you should pay yourself first – 10% of your income should be set aside for savings”. As well intentioned as they are, those formulas don’t work for most people. If you have not been a saver in the past, start small, and don’t be overly ambitious.
Try putting $25 – $50 aside each month until you get comfortable with that amount of money not being available to you then increase it by another $25 – $50 per month. Before you know it you will be starting to grow a small nest egg and you won’t notice the small increases in your savings.
Savings should always be a priority – right up there with fixed expenses like rent or mortgage payments and certainly ahead of “eating out” or “entertainment” expenses.
Debts should only be incurred when there is no other choice and when they are incurred it is best to develop a rapid repayment plan. Never get comfortable with being in debt – servicing debt sucks the money right out of your account and is a huge emotional drain and stressor for families dealing with it.
For more money management ideas, tips and information call the office (519-646-2222) for a counselling session or consultation, we also do group presentations.