Our personal finances are a big part of our lives. In the wake of COVID-19, many Canadians have started paying more attention to their finances and their savings. Our money especially becomes the centre of our focus after the holidays, when we’ve likely overspent. Ideally, we pay close attention to our finances year-round, but let’s make sure we get 2022 off to the right start by making it a priority now. This means it’s time to create a personal budget.
It might be tricky to know where, or how, to start with budgeting, because it can be a daunting task. Here’s why you should create a personal budget and some budgeting ideas to get the ball rolling.
When is a budget important?
You have debt issues
If you struggle to stay afloat with your credit cards, mortgage payments, or any other forms of debt, you might want to create a personal budget for yourself. Since you need to save for expenses, you can create a plan that prioritizes these costs to help you feel like you’re not drowning. Your budget will tell you how much you earn and how much you can spend, which will help you determine how to move forward with your debt payments.
You have trouble saving money
Even if you manage to pay all your bills, it’s also important to be saving money and not just breaking even. We should all make it a goal to have backup money, because extra savings come in handy for buying gifts, unplanned expenses, shopping, groceries, mortgage payments, utility bills or anything that isn’t predictable. Saving money with a budget also helps you gain financial freedom so you don’t completely rely on your paychecks.
You are planning a big expense
Are you planning to buy a home or car? Are you having a wedding? Paying for school tuition? Whatever the expense is, you’ll need to plan ahead and save for it. When a big expense comes along, it’s good to have a budget in place so you know you can save as much as you need. It’s tricky to properly save for something if you don’t have a strategy for contributing money or a timeline for completion.
Benefits of creating a personal budget
You have a better understanding of your finances
Budgets help you comprehend your own financial situation. You know how much you earn, save, and spend, and this knowledge can help shape your future financial planning. If you don’t have a good handle on your finances, you might not know if you can afford certain purchases, and you don’t want to be left in the dark with your own money.
You can live with less stress
Money troubles can cause anxiety. Everything in the world comes at a cost, so it can be stressful to not be sure if you can afford the things you need. Create a personal budget and stay on top of your finances. This will help reduce your stress because you’ll know what you can and can’t afford.
You can save for future goals
Most of us have some goals of things we want to spend money on in the future. Maybe it’s a car, a home, having children, retirement, a university degree, or something else entirely. No matter how big or small, money goals are best accomplished with a plan to go with them. Designing a personalized budget can help you achieve your goals with the least amount of stress.
Some realistic budgeting goals
Set up an emergency fund
Everyone should have an emergency fund for unexpected costs. We can’t always predict our expenses, and if we don’t budget for them, they can be even more stressful. The problem is if we don’t see them coming, how can we plan for them? The solution is to set up an emergency fund where you can contribute money to help cover any costs that arise in the future. You can add as much or as little to it as you need each month.
Plan for the future
This sounds vague, but only because the future looks different to everyone. Think about your own future goals and the things you want to accomplish financially. Depending on what you want to do, your budget will vary. For example, if you want to buy a home within the next five years, your budget will surround how you can save for a down payment and build your credit score.
Contribute extra income
Have leftover money at the end of the month? Before you spend it, think about how you can best use it to benefit you. You can add it to a savings account so it’s available to you in the future, should you be in need of some extra funds. You can read some more budgeting tips here.
It’s never a bad idea to create a personal budget, even if you don’t think you have an urgent need for one. Whether you plan to buy a home, tackle some debt, or simply save more, a budget is a great help. If you have questions about refinancing or getting a mortgage, get in touch with me!