As a former certified credit counsellor, I helped many clients from all walks of life set up and maintain a workable budget. Budgets work differently for everyone but the most important thing it has to work for you. Some use the envelope system, some use a credit card system (the one where you actually pay it off) and some use software that downloads the information into a spreadsheet. The point is, whatever system you choose it has to work for you and your strengths, if not there is no point in setting it up.
I created my system several years ago which consists of a simple excel spreadsheet. I have tried various software programs and other popular budgeting plans but this one works for me because I can customize and change the categories as my needs and that of my family change. The biggest challenge is setting it up and once you do, it simply is a matter of editing it several times a month and keeping track of expenditures.
Before you start sit down and realistically put on paper the various categories you and your family spend money on. Better yet, track your expenses for a minimum of three months by carrying a small notepad where you can jot down every cent that leaves your pocket, this includes every pack of gum, medium mocha and that single loaf of bread. By skipping this step you will prevent yourself from creating a realistic and successful budget. Once you have these items listed put down on paper every category that you have spent money on, the more detailed the better.
The biggest mistake I saw all too often when counselling clients was the forgotten categories. The popular ones were Christmas, gifts (wedding/baby showers and your child's friends) car repairs and heating oil/wood. Although these categories come up annually or semi-annually they still come up and can be the cause of your budget falling apart. You can only guesstimate on many of these but you are not doing yourself or your budget a favour by ignoring them, they will come up and will have be dealt with. Once you have a yearly guesstimate determined divide by 12 months and add to the categories you created.
To set up the system incorporating your money, you have to determine what your take home pay is each month. This is the figure that gets deposited into your bank account each pay after the gov't gets their fair share. Once determined sit down to create and assign amounts to each category you previously created until it totals your pay amount on a monthly basis. The rule of thumb is that every penny should be assigned a home and if there is extra money remaining you have to create a new category (savings for example) and if you are short you have to start making the tough decisions to cut certain categories.
Once you have this figure established simply divide by the amount of times you get paid in a month (by 2 if you are paid Bi-Monthly) The total at the bottom of this column should match the amount that is deposited in you bank account on each pay day.
When you first set up your budget the amount in the pay frequency column and the bank figure will be the same but will be edited as you start using the system. For now, focus on assigning categories and placing amounts next to them after which I will show you how to edit them.
| category | monthly | pay frequency | bank | spent | balance (amount in your bank account) |
| groceries | 400 | 200 | 200 | | |
| gas | 140 | 70 | 70 | | |
| hydro | 150 | 75 | 75 | | |
| phone | 40 | 20 | 20 | | |
| coffee | 20 | 10 | 10 | | |
| total | | | | | |
Here are some other often forgotten categories (other than the normal utilities and basics)
Gifts - guesstimate how many birthdays your child may attend and assign a figure you can spend on each. You may have to start limiting the amount of parties they can attend or lower the amount spent on each one. Also take into account your friends and how close they are to getting married or starting a family. All of these occasions add up and one wedding gift purchased at the last minute could run you upwards or $100.
Christmas (this one should have a category all it's own) The majority of my clients focused on the gifts alone, but what about the turkey and all of the fixings? What about the cheese trays and liquor bought for get together's? Don't forget the stocking stuffers and shipping costs. Do you tend to purchase decorations yearly? and what about that all important Christmas tree, that can set you back $40. All of these hidden things add up to more than double what you predicted. Be realistic and don't think if you don't acknowledge it, you won't spent it. Fact is I have never heard of cancelling Christmas, even though we have all threatened it.
house repairs - When we owned our own home we spent many Friday evenings roaming the halls of Home Depot. I cannot count how many people said "we don't spend money on our home" Do you buy shower curtains? Towels? washer hoses? touch up paint? It's not the major things that break the budget it's all those $20 hardware store receipts that kill you. You can only guesstimate this figure but I have not seen anyone with excess in this category at the end of the year (and if you do, see the next category and that should take care of that excess)
Car repairs (the true picture) : My car repairs always happened when I received a bonus or tax refund...never failed. Once again it is near impossible to figure out amounts but I always said to my clients "It's not if the car breaks down rather it's when the car breaks down. Even if you lease a vehicle you have to factor in tires and oil changes. You can only guarantee spending money of tires every couple of years (depending on mileage used) and oil changes. Start from there and go up. Once again there is never an excess in this category at the end of the year.
gardening/landscaping - think gas for the lawnmower, at one point this was a couple of bucks but not so anymore with the price of gas. What about fertilizer for your lawn or perennial food for your gardens? Replacing that garden hose can set you back $20.
bank fees - ah yes! the banks get their fair share, so add this little amount to your budget
Miscellaneous things: ink cartridges, vacuum bags, school pictures, school costs such as yearbooks and sports fees, filling up that propane tank in the summer several times
vacation or camp fees for your children (even camping can add up with lot fees and travel costs)
water/sewer taxes - for those paid quarterly simply multiply by 4 and divide by 12
coffee's - As much as you try to bring your own java to work there are always those "weak moments" where you drive thru for a "double double" Add them up and give them a spot
clothes - Even the most die hard thrift shopper has to assign a reasonable figure here. I have heard "absolutely nothing" when I questioning a client in this category . But when you start adding up underwear and undergarments, items that you pretty much have to purchase new, the costs add up. I don't know about where you live but a pack of men's underwear can set you back $10 a piece and socks are similar and need frequent replacing.
back to school costs - This is a big expense for most parents, take into consideration not only the list supplied by the school but how many outfits you get them on average. Most kids need a minimum of 2 pairs of sneakers. Also remember those extra snacks that you get for lunch (you may have to increase your grocery category at this point). I recently came across this neat site that gave tips on reducing some back to school costs.
co-pay for healthy insurance costs - my insurance covers 80% and that %20 comes out of pocket. For a routine oral exam, cleaning and the odd filing, my portion can quickly add up to $50 a shot.
firewood - even though it is purchased once a year this is a major expense often overlooked by most. Take the amount you purchase and divide it by 12 months.
This process takes the most amount of time and thought and what you initially put on paper will change twofold over the course of setting it up. As you go about your day think of things that you spend money on and if you feel this may be a reoccurring expense do yourself a favour and give it a category.
Stay tuned for part 2
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