The holiday season, with its gift-giving spree, can be an expensive time of the year. So, if you don�t already have a budget, it would be timely to start one.
A budget is a financial plan for monitoring how money flows into and out of your life. It shows how much you�re earning and how much�and on what�you�re spending.
It may reveal buying habits you're unaware of; it can certainly help you plan more effective ways to spend and save for what really matters to you. And it will prevent you from going into a dangerous bad-credit zone, which will imperil your credit score.
Use a budget worksheet
Track your income
First, use a budget worksheet (see link below). Here you will record all your income sources, including investment income and self-employment income.
If you receive a regular paycheck (with taxes deducted at source), then enter the take-home pay only as the amount. This is the amount that you will have to work with to cover your expenses.
Track your expenses
Then, add your monthly expenses�everything from groceries and gasoline to mortgage payments, insurance premiums and RRSP contributions.
(If you make only one annual payment for something, divide it by 12 months.)
Then sort these expenses into two groups: fixed and variable. Fixed expenses stay largely constant from month to month: mortgage or rent, car payments, cable and utilities. These expenses are a basic part of your life and seldom change in the budget.
Variable expenses include entertainment, eating out and, of course, gifts. These expenses will vary from month to month, and are where it�s easiest to make adjustments.
Income vs. expenses
Now, add up your monthly income and your monthly expenses. Hopefully, your income is greater than your expenses. If so, you can use the surplus to top up your RRSP contributions or to pay off your credit card balance.
But if your expenses are greater than your income, you�ll have to bring the two into synch�either by earning more or by trimming expenses. Definitely say no to payday loans and only making minimum payments on credit cards. This is a fast track to bankruptcy or a proposal.
If you have to trim, start with the variable expenses. You can eat out less and go to fewer movies and concerts.
Be sure to do a monthly review of your budget, to see if you�re �on the money.�
After the first month, check your true expenses against what you had projected in the budget. This will reveal where you did well--and where you may need to do better.
Budgeting isn�t complicated, but it does require careful attention to details. Even more important, living within a budget demands discipline and commitment. But it�s a good way to stay financially sound and to avoid a bad credit score! For budget worksheet, please go to: http://www.prudentfinancial.net/downloads/Prudent-MonthlyBudgetPlanner.pdf