Tips and Tools to Use
Step 1: Identify income and expenses
Step 2: Break down your expenses into (daily, weekly, bi-weekly or monthly):
a) “Fixed payments” such as rent, mortgage, loan payments, insurances, etc.
b) “Variable expenses” that can be controlled, including gifts, entertainment, travel, food, clothing, etc.
c) “Pocket-change expenses” such as snacks, newspapers, spontaneous small purchases, coffee, etc. (These add up fast!)
Step 3: Assessing the situation
a) Sum up all income sources such as take home pay, pensions, child support, alimony, rental income, etc.
b) Sum up all “fixed payments” expenses
c) Sum up all “variable expenses”
d) Sum up your daily “pocket-change expenses”
e) Add savings and emergency amount
Step 4: Balancing income and expenses
a) Compare your expenses to your income.
b) If you need to trim your budget, clearly identify the amount needed.
c) If you notice a significant imbalance, you might want to review your budget with a credit counsellor or financial advisor.
Step 5: Trimming expenses
Where to start? I have too many expenses and not enough money!
a) “Fixed payments”: No one thinks about trimming these payments because of their importance. But savings are occasionally possible with your fixed payments by doing your research: such as better mortgage rates, loan consolidation, etc.
b) “Variable expenses”: split your list into ‘needs’ such as food, clothing and utilities, etc. and then a list of ‘wants’ such as entertainment, hobbies, travel, etc.
c) “Pocket-change expenses”: consider car pooling, make your own coffee “to-go”, bring a lunch, borrow a newspaper or read the on-line news, etc.
d) Set realistic goals: You need to allow yourself small treats. You don’t want to set too harsh a budget – this will only cause you to give up.
Step 6: Savings and Emergencies
a) Here are some tips for savings:
a. Saving funds are important, try cutting from your ‘wants’ before cutting from your ‘savings and emergencies’ budget.
b. Consider emergencies and savings as part of your ‘needs’ budget.
c. An automated suggestion would be to have payroll deductions deposited into a savings account.
Sources:
How to handle your debt load - Manage Debt Step by Step (http://moneycentral.msn.com/articles/smartbuy/debt/contents.asp)
What Debt To Pay Off First (http://www.bankrate.com/dotp/news/cc/19980713.asp)
Household budget form (http://www.ourfamilyplace.com/budget1.html)
How to budget (http://www.bankrate.com/dotp/news/advice/20000511b.asp?keyword=)
Money Saving Tips (http://www.ourfamilyplace.com/saving.html)
