Increase savings by budgeting

Page 15

There are several reasons that people cite for not preparing a budget: it's tedious, it's time consuming, it's difficult, and it's unnecessary, to name only a few. Some of these reasons are valid, while some are little more than flimsy excuses, but taken together they do demonstrate a near universal truth-budgeting is an activity that no one really enjoys taking part in.

However, budgeting is also an extremely beneficial way to track your finances, and by approaching it with some easy guidelines in mind, it can prove to be the single most useful tool available for changing your spending habits, and quickly improving your overall financial situation.

"The first and foremost thing (in financial planning) is to take a look at where your money is going," said Larry Hackel, a senior service representative with Many Nations Financial Services Ltd. of Saskatoon. "Probably the quickest way to control and get a handle on your spending is to make a budget."

The first step in the budgeting process is to find out where your money is going now. This generally requires that you have copies of all your monthly bills and receipts on hand. If such documentation is not available, and you cannot confidently estimate the figures (very few people can, since the tendency is always to underestimate), then spend a couple months diligently collecting all records of your spending.

With accurate figures on hand, categorize this spending -example categories include rent or mortgage, bills, entertainment, etc.-and calculate monthly totals for each. For those with a computer and a piece of financial software like Quicken or MS Money, this process is especially easy, but even working longhand, it should not take long to identify specific problem areas. If, for example, you have a miscellaneous category that eats up 20 percent of your total income, a change in your spending habits is probably in order.

Contrary to what many think, effective budgeting does not require continuous tracking of all cash outflows. With your completed record of recent spending on hand, you can likely eliminate several categories from further consideration immediately-items that are obvious necessities, where spending is relatively stable from month to month, probably don't warrant ongoing attention. Instead, focus your attention on the problem categories, where you feel your spending can and should be cut.

Having evaluated your overall spending patterns, and determined the categories where trimming is needed, set yourself some concrete goals to strive after. As a rough guideline, your total monthly spending should account for no more than 90 per cent of your income, leaving a reasonable amount for savings, or to devote to large ticket purchases. Keep this in mind, and establish firm spending limits on each problem category.

Everyone obviously spends their money differently, so listing specific ways to cut expenses is virtually impossible. However, one of the easier ways to approach lowering your spending is to cut costs on inexpensive, trivial items. Such savings might seem inconsequential, but they do add up. The key here is to have the commitment and the willpower to follow through with your carefully made plans.

Yes, budgeting can be tedious, and yes, budgeting can be time consuming, but it isn't difficult, and it is necessary. Like your money itself, budgeting should be seen as an investment that, with planning, time and commitment, is sure to pay off handsomely.