3 things to consider before making a budget
Before you sit down to crunch some numbers, ask yourself these important questions:
1. What are my short- and long-term financial goals?
Think about your financial goals and make saving for those objectives a part of your budget. Examples of short-term goals include paying off your credit card, saving up for minor home improvements and reducing your weekly expenses. Examples of long-term goals include saving up for college or university, paying off all your debts and saving up for a down payment on a home.
Source: Some things to consider when reviewing your financial goals, TD Canada Trust.
2. Can I pay for an unexpected expense without going into debt?
No one wants to be caught in a financial pinch when they need money ASAP. You can deal with out-of-nowhere expenses like car repairs or urgent visits to the vet by having an emergency fund.
The Financial Consumer Agency of Canada (FCAC) recommends having enough money in your emergency fund to cover your living expenses for 3 to 6 months. This may seem like a lot of money and depending on your debts and expenses, it may take a while to accumulate that kind of wealth. But if you make saving for an emergency fund a part of your budget, you’ll get there eventually. Just be patient and consistent. Building a nest egg is a marathon, not a sprint.
Source: Setting up an emergency fund, Financial Consumer Agency of Canada.
3. Where does my money go?
Every dollar and cent you spend affects your overall budget, so keep track of where your money is going. The FCAC suggests taking note of what you spend for 1 or 2 months by:
- Monitoring everything you buy, from groceries and gas to a meal at a restaurant and the occasional coffee or treat
- Keeping a copy of all your bills during this period
- Dividing your expenses into 2 buckets: needs and wants
- A need is something that’s essential. Think medication, groceries, electricity in your home and a roof over your head. These are things you must budget for to survive. Then there are wants. These are often fun things like tickets to a concert, eating out at a restaurant and going on a vacation.
- Knowing the difference between your needs and wants is important, as even small changes to your spending habits can have a major impact on your overall budget.
Once you understand your needs and wants, you’re ready to start budgeting.
Source: Making a budget, Financial Consumer Agency of Canada.