How to create a budget in 3 easy steps

Budgeting is more than looking for bargains and cheap purchases. It's about understanding your cash inflows and outflows so that you can balance them out. Balance it all, yes, but without living paycheck to paycheck. Knowing that on average we should save between 15% and 20% of our earnings each year, a good budget always starts with a reality check.

Define your income

Start by analysing your cash flow. How often do you get paid? Weekly? Biweekly? Monthly? If you are self-employed, calculate your annual cash flow by adding up all the contracts you have done in the past year. Then report this figure on a monthly basis. Do you have any government payments? We take into account the net amounts (with deductions) for our analysis. Every dollar counts! It is based on your assets that you can realistically calculate your expenses. 

Understanding the essentials of our daily expenses 

Your money doesn't just disappear. Check your credit card or bank statements to see what your monthly expenses are. Your fixed payments can be calculated and budgeted for. This includes your rent or mortgage, telephone charges, electricity, internet costs, etc. Then, you can calculate your non-essential expenses such as your hobbies, restaurants or new clothes. 

Put everything on paper

There is nothing better than drawing up a budget in a spreadsheet to visualize our financial overview. Write down the figures from the previous points and make a quick calculation of your earnings and expenses. By looking at this snapshot of your portfolio, you'll know what you can and cannot afford. Do you spend more than you earn or can you afford to invest monthly in a savings account? It's up to you!

Making a budget is simple. It calculates what goes in and out of your account. This equation allows you to forecast your expenses and estimate your potential earnings. Be realistic about your budget limits or you won't be able to meet them. If you're still falling into the negatives, you probably need help managing your portfolio. Write to us! We will be able to guide you. 

This article was prepared by Pierre Dauth, who is a mutual fund representative with Investia Financial Services Inc. This is not an official publication of Investia Financial Services Inc. The views (including any recommendations) expressed in this article are those of the author alone, and are not necessary those of Investia Financial Services Inc.