Five essential steps to a better budget

While the thought of preparing a budget can be overwhelming, the results can be life-changing. Simply keeping track of where your money is going is an important enough reason to budget, but the benefits don’t stop there. Planning for long-term goals, being financially prepared for emergencies, retirement planning, and paying down or avoiding debt are all benefits you can experience with a proper budget in place.

Budgeting methods can be as simple or as complex as you choose, but the basics of budgeting are the same. These five essential steps will guide you in building a simple, sustainable plan that works.

1. Determine your monthly income

Figure out the net income of everyone contributing to the money coming into your household. Net income is the amount of money you take home from your pay cheque after taxes and payroll deductions. Also include income from anyone in your household who receives any other kind of payments or income for any disabilities, rental properties, or other investments. It is essential to include only consistent sources of income.

2. Track your monthly household expenses

You’ve added up how much you’re making — now it’s time to see how much you’re spending. Determine your regular monthly household expenses and bill payments, including any expenses that are paid less often than monthly. For non-monthly costs, calculate the yearly total and divide it by 12 to include a monthly portion in your budget. It is important that you also track your extra spending by either keeping receipts, writing it down, or using online banking.

3. Turn your goals into a financial plan

It’s key to identify your personal financial goals so you can work them into your budget. Are you saving for a down payment on your first home? Planning a big vacation? Or are you simply setting smart goals for building an emergency fund or saving for retirement? No matter what your financial goals are, define an amount and a timeline, and start working those goals into your budget. Budgeting is the foundation for turning your financial dreams into reality.

4. Create your spending plan

This is where budgeting gets personal. Build a plan for your everyday spending, including hobbies, entertainment, dining out, fitness, or any other regular purchases that matter to you. As long as these costs fit within your budget, there’s no need to cut them out. With a bit of planning, you can enjoy the things you love while staying financially on track.

5. Make budgeting a habit, not a hassle

This final step might be the most important one of all. It’s common for people to start making significant changes without actually maintaining them over time. A budget shouldn’t be something you do once and then forget about. As your income and expenses change, you’ll want to keep your budget up to date. Develop a good habit of checking it every month to ensure you’re staying aligned with your plans and goals — both short- and long-term. Making your budget part of your lifestyle is key to reaping the benefits.

Experience what budgeting can do for you

Budgeting will reveal your spending habits and help you determine where you need to curb your spending and how to achieve your financial goals. There are many ways to track your income and expenses, such as saving receipts, writing down where you’re spending money, or even using an online app for tracking your expenditures.

There’s no better time than now to begin budgeting and start experiencing life-changing results. Understanding how you’re spending your money — and identifying areas and opportunities to save — can help you build a more stable financial base for the future, paving the way to full financial freedom.