This is the time of year when knowing how to properly budget is a major priority. With the malls filled with holiday shoppers, it is evident that most people are spending more than they have all year. Of course, with the holiday season comes gift-buying and eventually, inflated credit card bills!
Back in June, business reporter for The Toronto Star, Madhavi Acharya-Tom Yew wrote of the ten steps than one can take to help properly budget. “Budgeting may seem daunting, but it doesn’t have to be complicated,” Acharya-Tom Yew writes, “It’s not so much what you make, but how you spend it that’s important.”
We figured that there would be no better time than now to revisit this list of budgeting tips. The first step is to “gather the facts”. It’s important to go through your financial records for, at least, the past three months. Go through all of your expenses right on down to your “little extras” like morning coffees.
Secondly, “create a worksheet”. Once you have gathered all of your facts, you will have to organize them so that you can create a clearer picture of the type of spending that you’re used to. Next, break your spending into “fixed and discretionary costs”. Your fixed costs include mortgage, rent, car payments and insurance. In other words, the monthly charges that don’t usually change.
The discretionary charges are the ones you can change. They include groceries, meals, entertainment and clothing. The “rules of thumb” writes Acharya-Tom Yew, say that “your housing costs should be less than about one-third of your gross income, financial planning.”
Also, “your monthly debt payments should not exceed 40 per cent of your gross monthly income. This includes housing, and such things as car loans and credit card payments.” The next step is to “pay yourself first”. Put away 10 per cent of your pay cheque. This is the simplest way to guarantee that you will be saving money over time.
“Cut out non-essentials,” insists Acharya-Tom Yew. You don’t have to buy your lunch every day. Turn fixtures into treats. Spend less on little unnecessary frills that add up over time. Attempt to avoid impulse purchases. However, when those credit card bills come rolling in, “pay more than the minimum”.
This step is a surefire way to help eliminate those dreaded interest charges. “Save for a rainy day” by getting a high-interest savings account. “Review and adjust” by going over your budget regularly to make sure you are staying on track. And finally, “build in a reward”. Once you have met your budgeting goals, it’s okay to splurge on something to treat yourself. But don’t forget to go right back to the plan and keep your budget in check!