Money Management Basics
Like driving a car or playing an instrument, the skill of managing money must be learned - and it’s never too late to start!
It’s not how much you make, but what you do with what you’ve got. Proper money management does not involve a magic formula to find more money. It simply means getting the most from the money you do have.
The steps to building a budget involve:
- SETTING GOALS
- IDENTIFYING INCOME AND EXPENSES
- SEPARATING NEEDS AND WANTS
- DESIGNING YOUR BUDGET
- PUTTING YOUR PLAN INTO ACTION
- MANAGING SEASONAL EXPENSES
- LOOKING AHEAD
STEP 1. Set Goals
Before you can begin to manage your money, you need to identify what is important to you. Then you have a foundation to decide what you want to do with your money. Write down what is important to you and use your list to help you determine goals for your money.
STEP 2. Identify Income and Expenses
Once you have established some goals for your money, it’s time to look at where it comes from and where it goes right now. Start by making a list of all your household income sources and the amounts. Include everything wages (after taxes), commissions, self-employment income, child tax benefits, pensions, child maintenance & spousal support, and other regular income.
Now it’s time to record your spending. Spending includes everything you spend your money on; all of what you may typically think of as “expenses” (utility bills, groceries, transportation costs), but savings for a rainy day, debt payments, life insurance premiums and RRSP contributions are all expenses as well. There are also seasonal or annual expenses that need to be accounted for in our budget, e.g. gifts, vet bills, holidays, home repair, new glasses or clothing.
STEP 3: Separate Needs from Wants
As people track their spending, they discover that some of their money gets used for things they really don’t need. Instead, they merely want them and often buy them impulsively. Impulse spending is unplanned spending: purchasing things that you may or may not need, or spending more on an item than you’d planned.
STEP 4: Design Your Budget
Many people don’t like the word “budget” because they think it means limitations, deprivation and no money to spend on the fun stuff. Relax, your budget is your spending plan - it will allow you to live within your means, avoid the stress of money troubles and give you the freedom to make choices with what you have. Most importantly, a budget will allow you to map your way to reaching your goals.
To download a Budget Worksheet - Click Here
STEP 5: Put Your Plan into Action
You’ve set goals, identified your income and expenses, determined how much to save for seasonal expenses and made choices around needs and wants. Now it’s time to put your plan into action!
STEP 6: Manage Seasonal Expenses
Now that you have created a workable budget and have planned your pay cheques, the last step is to plan your savings money so that you are able to track and manage your seasonal expenses.
STEP 7: Looking Ahead
Any good plan must involve monitoring, periodic review, and occasional re-evaluation. A spending plan is no different. Circumstances may change, mistakes can be made and your needs will vary at different times in your life.
