"Real Estate Bits - 2"

How To Budget For Life - Part 1

One of the main reasons why you'll want to set up a budget is to reach your short and long-term financial goals. These goals cover major events in your life that you will want to take into account when developing a financial plan. Always had your eye on a house with a big backyard? Want to save for your children's postsecondary education? Looking forward to an early retirement? It's doubtful that any of these things can happen if you go through life spending money indiscriminately, without a plan.

Budgeting is about looking at the big picture, deciding where your priorities are and making a few short-term, changes to reach your goals.

Manage Wants And Needs

The first step in developing a budget is understanding the difference between wants and needs. When you're grocery shopping, how often do you reach for a box of cookies or a magazine at the counter even if they're not on your list? Make a promise to yourself that the next time you're thinking of buying anything, ask yourself: Do I need this? Or do I just want it? You'll be surprised how often you'll put it back on the shelf or walk away. Besides, we all know what happens to most impulse purchases. They end up collecting dust somewhere in the house after a few weeks.

Making Small Changes

It's amazing how often most of us visit an ATM, take out $60 and a day later can't remember where all that money went. Usually that's because we spend the money on the little things - a candy bar here, a coffee there. But it's these little expenses that add up.

These are perfect purchases to start determining the differences between wants and needs. By forgoing that third or fourth cup of coffee, you could be saving yourself more than just caffeine jitters. Let's show you how:


2 cups of coffee per day = $3
5 days per week = $15
50 weeks per year = $750
5 years = $3,750

Over five years, you could save yourself enough money to pay off credit card debts or pay down your mortgage sooner. Of course this money could grow significantly if you decided to invest it.

The Reality Of Budgeting

As you see from the coffee example, making small life changes to meet your budget does not have to be difficult. Discipline and planning for the future make excellent partners. It's simply a matter of remembering why you're saving and not spending in the first place. Like everything else in life, moderation is the key.

Then there is also the issue of cash flow. It always feels good to know you have enough money on hand, but everyone experiences peaks and valleys in their cash flow. The important idea to keep in mind, however, is to make sure your cash flow is working for you.

For example, if you have paid off your car and suddenly have extra money on hand at the end of each month, save it, invest it or use it to pay down your debt. But do not roll it into your cash flow without considering your alternatives. Most people tend to spend the money they have, but if that money is out of sight, it's out of mind and the extra money is now working for you.

How To Develop A Strong Yet Flexible Budget

Now it's time to take a look at the results. Add your monthly income and record it on a worksheet. Add all your expenses and record them too. Now look at the difference between the numbers to see how you're doing. If you've got surplus money, you can still find ways to make your money work smarter. Set up a plan with your bank so that money is automatically taken from your account to invest, for example a Pre-Authorized Contribution or recurring transfer. If you're spending more money than you have, it's time to take a good look at what you're spending and why.

A Sample Budget

Click Here to use Scotiabank's Cash Flow Calculator to determine your surplus or deficit by month or by year.

Use the example below as a reference to help you categorize and record your own budget items.

Income Monthly Amount Actual Amount

Salary:
Spouse's/Partner's Salary:
Secondary Salary:
Investment Income:
Inheritances:
Dividends:
Other (Pension, Alimony, Child Support):

Subtotal = ________________________________


Expenses (fixed & variable)

Mortgages or Rent:
Utilities: Water, Gas, Hydro:
Cable TV:
Internet Service:
Telephone:
Home Repairs:
Car Payments:
Gasoline:
Auto Repairs:
Other Transportation:
Auto Insurance:
House Insurance:
Child Care:
Pets:
Entertainment:
Computer:
Groceries:
Eating Out:
Healthcare:
Hobbies:
Reading
Material:
Miscellaneous:

Expenses Subtotal = ________________________


Difference (Or Net Income) = __________________

Summary: Points To Keep In Mind

That's all for Part 1. Next months article will be Part 2 of how to budget for life will cover ways to spend and save better and planning for budget busters.