Managing personal finances can be a very daunting task. Often times it is tempting to simply turn a blind eye when it comes to tracking our expenses. In this blog post, we will discuss some basic steps to save money by keeping track of financial flows, setting achievable budgets, and following these budgets.
Monitoring Financial Flows
In order to control our finances we need to understand where they come from and where they are lost. We can have various sources of income and expenses such as:
- Income: pay-cheque, social assistance benefits, child support (child tax benefits and credits), tax rebates, earnings on investments.
- Fixed expenses – rent, insurance (health and car), utility bills
- Living expenses – transit, gas, groceries, household items
- Personal expenses – clothes, gifts, entertainment, education, dining out
- Other bills – credit card
The first step is to gather all documents relevant to our finances, such as receipts, bills and invoices, and pay stubs. Then by performing a simple calculation we obtain our “balance”, or the amount of money that we have not used:
Income – Expenses = Amount to be saved
It is important to ensure that we have a positive balance as it can be saved up; a negative balance means we have spent more than we earned, so we need to reduce our expenditures.
Setting Achievable Budgets
By setting a budget, we place a cap on the amount of money that we spend. With the increased usage of credit cards, it is very easy to accumulate debt and to overspend. Budgeting allows us to identify and control bad spending habits.
So you may be wondering, how exactly do we set appropriate budgets? A budget is a quantitative goal, therefore it must be SMART:
- specific so we are clear of what we want to accomplish
- measurable so we can compare our budgeted amount to actual expenses
- achievable so it is challenging but not impossible
- relevant so it helps us to accumulate wealth
- time-bound to ensure a successful and timely completion, also motivates you to reach your goal on a certain day
For example, we can limit our spending on eating out (specific) to only $50 (achievable and measurable) each month (time-bound), so we can reduce unnecessary costs (relevant).
Following and Evaluating Budgets
It is crucial to follow budgets and to keep track of budgeted amounts and the actual expenses incurred during each time period. One of our workshop coordinators shared with us that she herself sets budgets. She would record all of her expenses on a continual basis, and at the end of each month, she would calculate the total amount spent in each respective category. She claimed that this allowed her to compare her actual expenditures that month with the budget she had set. There is no perfect budget amount; budgets should be set based on what is suitable for your individual situation.
Managing finances is no easy task as it takes commitment and time. Through budgeting, one can learn to prioritize spendings, to accumulate wealth, and to be better prepared for the future. Best of luck budgeting and saving! For additional tips, take a look at Hunger Actions’ online budgeting templates!