Budgets and budgeting
Budgets and budgeting go with the territory for Licensed Insolvency Trustees. I have worked, progressively, in the industry for almost twenty-five (25) years. During that time, I have worked through, quite literally, thousands of budgets with clients from all walks of life.
There are common themes that recur as we ask people about where their money goes – most can identify their fixed expenses and regularly occurring expenses (like utilities) with a reasonable degree of accuracy. However, few people really have a handle on their irregular expenses, such as car repairs, gifts or clothing, and even less people really understand the waste in the budgets arising from impulse purchasing.
The most striking thing, for me, about working through budgets is that poorer people are far better at it than wealthier people. A client comes to our office for the first time, they set their large sized Tim Horton’s coffee mug on the table – as we work through their budget I ask, “how much do you spend eating out?” the response is often “I wish, we can’t afford to eat out”. I point out the coffee and ask facetiously “then what’s that?” the response might be “oh that, that’s just a coffee, you know only $2.00”.
Well that $2.00 works out to about $60.00 a month, if that’s all they buy and if they only go once a day. Add muffin or bagel and that amount may jump to in excess of $100.00 per month. Many people easily spend $200.00 per month at Tim Hortons or Star Bucks. That would work out to about $2,400.00 per year or more than $3,000.00 of pre-tax income – that’s equal to more than 10% of (half of all) Canadians’ income.
How about those irregular, but necessary, expenses such as car repairs, clothing and gifts? We might easily conceive of each of those expenses amounting to $1,000.00 per year. That would be about $80.00 per month each or $240.00 per month (for all three) that should be retained in your bank account for the eventuality that any one of them should (and they will, arise.
Savings, where on your budget should that go? Perhaps somewhere at the bottom after you have purchased booze, pot and cigarettes? Of course not, it should be one of the first things that comes out of your account – a layaway – it doesn’t need to be a large amount of money but is needs to be a priority, certainly over non-necessary spending.