Perfecting Your Budget: 6 Steps for Financial Mastery

We are not all born with an incredible financial skillset.

Learning how to create a budget and live your lifestyle according to that budget doesn’t happen overnight. Just like driving a car or washing the dishes, these skills must be learned. It can take some time before you master them, and that’s okay. All that matters is that you’re taking the necessary steps to live a more financially-conscious lifestyle.

Let’s look at some of the most important steps to creating a perfect household budget!

Step 1: Set Goals and Create a Plan

Your goals are the foundation to your financial plan. You need to have a clear idea of your needs and wants, so that you can create a plan to achieve them.

First, determine what is most important to you. This could include:

Having no money worries
Starting a family
Travelling the world
Starting a business
Owning a home, cottage, and/or investment properties

What is most important to you can often shape your lifestyle. If the list above includes some of the most important things to you, some of your goals could include:

Starting an RESP for your children
Early retirement
Build a strong savings account
Pay off all debt
Save three to six months of expenses

Your goals can have a wide range of timelines. For short-term goals, the timeline could range from three to 12 months, while long-term goals could stretch from five years to twenty-five years. It all depends on what you need from your future and what you are capable of.

Once you have determined your goals, it’s time to create a plan and put those goals into action. This could include hiring a financial advisor, opening an RRSP or RESP, or acquiring the assistance of an expert in household budgeting.

Step 2: Identify Income and Expenses

Now is the time to review your income and expenses, so that you can have a clear idea of where you stand financially.

First, combine all sources of household income. This includes income from you, your spouse, investment properties, family members, and/or funds from the government, such as the Ontario Child Benefit.

Next, calculate your monthly bills, which can include:

Rent/mortgage
Savings
Groceries
Cable, phone, and/or Internet
Insurance
Gas and/or travel
Utilities

While calculating these monthly expenses, it’s important to keep in mind the seasonal expenses that don’t happen every month. This includes vehicle repair, vet bills, medical emergencies, home renovations, memberships, and more.

Calculate the average annual cost of these expenses and divide them between 12 months. That number is important because it represents the money you will need in your bank account to cover your expenses. When the time comes around, you’ll be completely prepared.

Step 3: Major Changes

It’s time for the moment of truth.

This is the part where you deduct your monthly expenses from the income. If you’re left in the negative, that means you are not earning enough to support your current lifestyle. So, one of two things need to happen to ensure that you don’t find yourself going into debt. Either you raise your household income, or you reduce your monthly expenses.

Chances are, reducing your monthly expenses will be the first step. Things like vacations, impulse purchases, dining at a restaurant, or updating your home may have to wait until you have stabilized a realistic and manageable household budget.

Step 4: Creating a Comprehensive Budget

You can create a budget with this new-found information about your finances and lifestyle.

You should not think of this as a budget, but more like a spending plan. That way, you have a specific plan for every penny that you earn. You can ensure that no unnecessary spending or impulse purchases will affect your quality of life or create money worries.

While designing your budget, try putting pen to paper. Determine which bills are necessary, and which can be reduced a little. You can refer to this plan throughout the month while paying bills, doing groceries, and buying those speciality lattes you love so much.

This budget is designed to help you reach your goals. It should leave some wiggle room for extras that come up each month, while contributing to your various savings accounts. No matter your financial situation, saving is crucial for your future. Regardless if you have an everyday savings account, RRSP, or RESP you should have funds each month dedicated towards your future.

For more information about retirement savings and household budget management, contact the experts at Halton Wealth Management.

Step 5: Budgeting Techniques

Here are some great ideas to help improve your budgeting strategy, so you can save money and plan for your future!

Create a separate bank account for your personal savings that you can’t easily access
Leave credit cards at home, locked in a safety deposit box
Always pay more than the minimum payment and reduce debt as quickly as possible
Lower cash withdrawal limits on your debit card(s)
Create an automatic withdrawal to your savings account from your chequing account
Track all your bill payments and purchases by writing them down

Once you find the budgeting techniques that help you to save money and stabilize your finances, stick to them! Just because you get a little ahead doesn’t mean it’s time to slow down.

Step 6: Creating a New Lifestyle

Being conscious of your finances and working towards a series of goals should become a part of your lifestyle. Being aware of how much you’re spending and knowing when it’s okay to splurge a little bit can easily become a part of your lifestyle, with the right mindset.

Having trouble adapting to this new budget, or creating one to begin with? You never have to be alone. Feel confident in your finances and plan for a better future with help from the financial experts at Halton Wealth Management. We offer a variety of services, including customized investment solutions, asset management, retirement income planning, and more!