The Dreaded B-word

If the mere mention of the word “budget” makes you groan, maybe you haven’t given this old idea a fair shake.

Trying to get through life without a budget is like trying to drive a car with no steering wheel. You can lurch your way along, jamming on the breaks every time a threat looms, or you can put the pedal to the metal, but the whole time you’re careening down the road you’ll be worrying about what you’re going to hit. And if you’ve got any passengers, there’ll be some mess to clean up when you finally reach your destination.

Anyone that I know who lives on a budget couldn’t get by without it. And it seems it’s only the people who refuse to make a plan who end up bellying aching about getting to the end of the money before they get to the end of the month.

If you were building a house, you wouldn’t dream of using an architect who declared, “Relax. I’ve done this before. I promise I’ll put everything in the right place.” Noooo. You’d insist on seeing some drawings. And here’s why you should, as the architect of your financial house, draw up a budget.

Whether paper-based or electronic, the discipline of managing your budget will help to keep you organized. Annual bills, like car insurance, won’t surprise you, sending shock waves through your cash flow. And unexpected expenses, which have a category in a spending plan, won’t throw you for a loop.

A spending plan is made up of two parts: income and expenses. Income is the money that comes in: your salary, commission, dividends or interest income, alimony, child support, pension, or disability income. It doesn’t include money you think you might get. So, if your bonus is not guaranteed, don't include it in your budget. Keep it in reserve to boost your RRSP or take you to the sunshine next winter.

Expenses are the items you have to pay for monthly. (Divide annual bills, such as insurance, by 12 to come up with a monthly amount.)

The best way to figure out your expenses is to look at what you've been spending. Collect your bank statements, credit card bills, and whatever other records you have of where your money went over the past year. Put each bill in an appropriate category — i.e., utilities, food, clothing, childcare, gifts — total the figures for each category and divide by 12. That's your monthly average. Add the categories together. That's what you’ve been spending.

Now, for all you toads out there who can’t gather together two months’ worth of paperwork, never mind a year’s worth, here’s the other way to make a budget: You can use the nifty Gail’s Guide to Building a Budget along with the even niftier Gail’s Interactive Budget Worksheet.

If you think you can keep flying by the seat of your pants forever, good luck with that.

If you’ve decided to take control of your financial future, congratulations. Create a budget that balances and you’ve taken the first step to making your money work for you.

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