- Colombia se enfrenta a la posibilidad de vivir un “tsunami” de plástico
- Las humanidades medioambientales en la narrativa latinoamericana
- Antibiotics no cure for colds or flu
- Violencia en la familia
- Día de los muertos, ¿esperanza vacía o consoladora?
- Trump calcula que hay “10.000” personas en la caravana y dice que “no entrarán”
Creating a clear and accurate budget
London, On.- The Household Budget is made up of two main sections: your sources of annual income and your sources of expenses.
To make the job of tackling filling out all this information easier, you first need to take the time to properly gather certain documents that will provide you with your most recent income and expense information.
Here’s what you’ll need for filling out each section of the budget:
Sources of Annual Income section:
• Your most recent Income Tax Return. Make sure it’s a complete return with copies of your income tax slips (T4, T5, T3, T4A, T4-RRIF, RRSP contribution receipts, etc.). Your income tax return and information slips will provide you with the majority of the information you need to complete this section to determine your income and income deductions (such as income tax paid, EI and CPP premiums deducted, pension contributions, dividend, interest and trust income, etc.).
Sources of Expenses section:
• Copies of the statements for your bank and investment accounts, credit cards, household utilities, property assessment notices, etc. so that you can list all the things you’ve been spending money on over the last months and see clearly where all your money is going and how much it’s really costing you. For some expense items you should have at least six months (preferably 12 months) of statements available. The account statements will help you to identify and, in some cases, get a handle on your annual expenses.
Now that you have all that information, it is time to work your way through a proper budget by itemizing or identifying all your income and living expenses.
But be warned: this exercise may bore you to tears. But think of the big picture. By taking the time to itemize all your income and living expenses and then taking a closer look at each item will actually pay off by helping you achieve your financial goals.
Budgeting, after all, is simply a tool you use to get the maximum benefit from your spending. You work hard for your money, so make sure you’re making the most efficient and profitable spending decisions.
So when going through the budgeting exercise, you should focus on three main goals:
• Increase the amount you can save on a regular and consistent basis.
• Make sure you receive the maximized benefit from each spending decision.
• Identify your spending priorities in relation to your financial and lifestyle goals.
For each expense listed in your budget, ask yourself the following questions:
1. Is this expense item a need or a want?
• If it’s a need, are you getting the best value for the money you are spending? Make sure you‘re not overpaying for the item. A budget helps you to question and examine the cost and benefit of each expense.
• If the expense item is a want, ask yourself if it’s important to your lifestyle. If it’s not, then it cut it. But if it is important then, once again, check if you’re paying too much for the item. You may have committed to the item expense years ago not realizing that you can pay less for the same item today (i.e. internet, cable, cell phone services, etc.). Compare costs with your neighbours or friends, and then call up the provider armed with the knowledge of other people’s costs. Sometimes it’s as simple as asking the item’s provider to give you a better price or maybe a competing provider can lower your costs.
1. Is the expense item permanent or temporary? Many expenses have a limited life (children’s activities, education costs, car payments, mortgage, RESP contributions, etc.). Understanding the expense item’s time frame can often help you to adjust your spending to ensure the most successful outcomes. Accept that financial and lifestyle circumstances change and your budget must be flexible to adapt with those changes. For example, when you know that you’ll be making car payments or paying for piano lessons for the next five years, then you know to cut back on other expenses such as dining out, expensive vacations, etc.
2. Is the expense item a duplicate expense? For example, you may be paying for extended medical, dental and insurance benefits you already receive from your spouse’s employer. Many expense decisions are made in isolation of each other and without realizing it you may be doubling your costs.
Once you’re happy with the answers for an item in your budget, go on to the next item. If you don’t like any answer for an item, however, consider that to be a red flag and a call to action: either eliminate the expense completely or shop around for a new provider at a lower cost.
Unsatisfactory answers, after all, are your opportunities to save money!
Next month, in the final column in our budgeting series, we’ll look at a couple of ways your budget can help you save and even increase your wealth. –TroyMedia
George Christison is one of the founders of InvestingForMe, a financial resources website dedicated to helping Canadians make better saving and investing decisions, with greater confidence.