How to create a budget

Have you sat down and really thought about your financial future? I know people are busy these days and you think “well I’m young now and I’ll have time to do it later.” You’re dead wrong. You are NEVER too young to start saving for retirement!

Step 1: Calculate money coming in

List all of the money you and your spouse or partner have coming in. This can include money from:

• Full- or part-time work
• Disability payments
• Employment insurance or other government benefits
• Spousal or child support
• Interest from a savings account or investment earnings Add up your total, to calculate your household monthly income.

Step 2: Calculate your expenses

List all your costs for a typical month, dividing them into major categories.

If you have trouble defining your expenses, review statements and keep receipts for everything you spend for a few months. Remember to account for occasional expenses, such as vacations (take the typical annual amount you spend on trips and divide that number by 12 to get a monthly average). The goal is to get an accurate picture of where your cash is going. Your spending categories might include:

• Rent or mortgage payments
• Utilities (water, electricity, heating costs)
• Groceries and household items
• Transportation
• Medical expenses
• Communication fees (phone, cell phone, Internet connection, television)
• Personal care (clothing, grooming products and services)
• Entertainment
• Vacations
• Gifts
• Charitable contributions

Add up the subtotals for each category, and the total of all expenses.

Step 3: Calculate your balance

Your magic number comes from subtracting your estimated monthly expenses from the money you have coming in.

A positive balance means you will have money left over to save for future needs. Be sure to put this money aside, to cover months when expenses are higher or income is lower.

If the balance is negative, you need to rethink your spending or consider ways to increase your income. This is how your budget becomes not merely an exercise, but a powerful financial management tool. By looking at where your money is going – and where you want it to go – you can use your budget to help control your finances.

Step 4: Revisit your budget regularly

Your expenses will likely vary from month to month, especially if you’re a homeowner or have children. Revisit your budget regularly – say, every six months – and compare what you thought you’d spend to what you’re actually spending.

By checking in regularly and monitoring progress, your budget will remain relevant and effective.

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