You know you should have a family budget, but where do you start? Let’s tackle it in four simple steps:
Tracking your expenses
First of all, do you know what your income is? Are you self employed? What is your average after tax earnings (don’t include overtime or bonuses, as those can come and go)? If you are self employed, take an average of your net earnings after business deductions and tax for the last 12 months to determine your average net monthly income. You can include any monthly government credits you receive, such as the Child Tax Credit or Rental Subsidy and child support or alimony payments (assuming they are consistent!)
Tracking your expenses can seem like an onerous activity, but it really gives you the information you need to set yourself up for success. How many times do you go to the grocery store for one or two items and walk out with two full bags, or stop in at your favourite coffee shop for a little something on the way to work? All of these things can add up to a shocking amount of money, money that you could be putting to good use for things like savings, a weekend getaway, or a down payment on that car or home you’re hoping to purchase “one day”. One day these things can happen, if you focus your finances and spending.
You’ll need to figure out a way to track those expenses. Set up a spreadsheet, find a budgeting app (my colleague uses “Expense Keep” on her iPhone), or go old school with a notebook in your purse. If you are married or have a partner, it’s important for both of you to track your expenses regardless of how you have set up your day to day finances (a topic for another blog). Do this for a minimum of three months and see what the average figures are.
You should have three main categories:
- Fixed expenses
These are expenses that don’t really change, for example your mortgage, rent or car payment.
- Variable expenses
These are expenses that do fluctuate from month to month, such as groceries, eating out and gas.
- Annual, Seasonal and Irregular Expenses
This category is very important. There are often times throughout the year where you have to come up with extra funds that you may not have set aside. If you are on a fairly tight budget, unexpected car or home repairs can throw your finances into a tail spin. Other expenses that fall into this category would be school fees, summer camps, birthdays and other celebrations, not to mention dental expenses or annual insurance premiums. The list can go on and on depending on your family. Knowing what these expenses average out to over a year is important. Take a look at your banking transactions for the last year or two and see what you’ve spent so you can come up with an average monthly amount to incorporate into your budget.
It is important during this step to get an accurate idea of how you and your family are spending as there will be time later to make adjustments and choices when you prepare to put your budget into action.
Here is an example of what a spreadsheet might look like after you’ve totalled your monthly spending:
|Fixed Expenses||Month One||Month Two||Month Three||Average|
|Cell Phone/Home Phone|
|Car Finance Payment|
|Variable Expenses||Month One||Month Two||Month Three||Average|
Of course, this list is not comprehensive and you should add any regular expenses that your family incurs, such as child support payments or pet expenses.
Stay tuned for Step Two!