In Part 1, we reviewed some practical ideas for your personal budget including:
In How to Budget for Life: Part 2, we outline:
Ways to Spend and Save Better
Using Your Budget
As described in Part 1, once you know how much money you're spending every month, it's time to develop and follow a budget (see our sample budget for an idea of what they're supposed to look like).
Budgets have three columns and in some ways look a lot like the worksheet in which you recorded all your financial information.
Monthly Amount: This is the column that represents how much you expect to spend. You choose the amounts to reflect what you think is important - keeping in mind your long-term financial goals.
Actual Amount: This column tells you how much you actually spent this month.
Difference: This is the difference between the planned amount and the amount actually spent.
If you've spent more than you wanted one month, don't panic. Now that you have a good understanding of your money situation and where it's going, you can get creative and make informed decisions. Spent too much on clothes in May? Scale back a little in September. Too much take-out? Buy or make a few pre-made dinners or brown bag your lunches to offset the costs.
Note: You might decide that developing a budget that follows your pay period is easier. In that case, you might decide to develop a bi-weekly budget. It's important to remember to choose a budgeting plan that works for you.
Finding practical ways to cut expenses
There are always areas to scale back and cut down your expenses that eventually become habit. We have collected some common sense tips from a variety of sources and listed them below. These are general ideas and may not reflect your specific situation. However, they are provided as simple suggestions for shaving or finding extra money that may help out with your personal budget:
If you are interested in more ideas, simply get online and use your favorite search engine to look up ways to save (hint - use key word searches like "budget tips" or "saving money").
Again, the points above may or may not be applicable to your situation. Just remember that keeping an accurate record of your expenses puts you in the best position to effectively manage your budget.
How to plan for budget busters
There are some expenses that sneak up on you, but if you have a budget and know to look ahead, few of these expenses will be a surprise when they finally happen. Think emergency fund - with a twist.
Most financial experts tell us to develop a traditional emergency fund money often stored in a money market account or your bank's high interest account. This ensures you can access it easily, but the money still accumulates some interest. This fund doesn't always cover expenses if you feel the emergency is unexpected and the price is high, however.
A planned emergency
It is always best to anticipate early when planning for an emergency. How? Pay yourself first and pay yourself often. If you were to put $50 in an easily accessible place every month, the money adds up and before you know it, you have money for the unexpected.
The beauty of the planned emergency fund, however, is that few emergencies are actually surprises. Suppose you know your house will need a new roof in five years. Determine how much you need to save, then put money aside on a regular basis to reach that goal.
Still retain a traditional emergency fund for true emergencies, but don't keep all your money there.
It also helps to include a category in your budget called "repairs and maintenance" or "future dental" or anything else you feel may become an issue years down the road. Remember to write them down, estimate the cost and plan to save for them.
Peace of mind
Budgeting is a fundamental part of taking control of your present and future finances. By knowing exactly how much money you hold to save and spend, you are in a much better position to determine where that money needs to go - and how much.
Now that we've given you an idea about how to set up a budget and how to follow it, the next step is up to you. Pay yourself first, use practical ways to cut your expenses and learn how to anticipate expenses and emergencies. And remember to write down what you spend. Your long-term financial strategy will be better for it.
A Sample Budget (Repeated from Part 1)
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 catagorize 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) =
If you would like to take immediate action with your budget, a great idea is to pay yourself first with a Pre-Authorized Contribution. Click Here and find out how easy it is using Scotia OnLine.
And, find out more about Scotiabank's new Money Master® High Interest Savings Account to help make the most of your savings. Click Here and find out how easy it is using Scotia OnLine.
Or call us at 1-800-4SCOTIA to set up a Pre-Authorized Contribution, or open a Money Master® High Interest Savings Account.
