The average Canadian has $72,950 in debt when you include their mortgage payments.

It can be necessary to borrow money to make big purchases like a house or a new car. However, being in debt can also be incredibly stressful and keep you from meeting other financial goals you have.

Even if you aren’t in debt, it can be hard to get ahead these days. If you’re feeling like you’re spending more money than you’re making, or that you should be saving more, it’s probably time to make a household budget.

Are you ready to start budgeting so that you can realize your financial dreams? Let’s take a look at what you need to know.

Set Up Your Spreadsheet

There are a number of different ways that you can document your household earnings, standing, and budget. One of the easiest ways to do this is with a simple accounting program or a spreadsheet program. However, you could even do this with just a pen and paper.

It is worthwhile to set up a system like this before you start looking at your budget. You will want to have an organized approach to your household budget if you are serious about sticking with it in the long term.

Gather Your Financial Documents

Before you get started, locate all of your financial paperwork. This includes:

  • T-4s and pay stubs
  • Bank statements
  • Recent utility bills
  • Credit card bills
  • Investment account
  • T-4as if applicable
  • Mortgage or auto loan statements
  • Receipts from the previous three months

This will make it more efficient and less stressful to make your budget. It’s important to have access to the whole picture when you’re making a household budget, and gathering the documents ahead of time can make the whole process go more smoothly and be more effective.

Calculate Your Income

Now it’s time to take a look at how much income you expect to make each month. You can use your net income if you receive a paycheck from which taxes are automatically deducted. If you have outside sources of income or are unemployed, you will need to include these as well.

If your income is variable, for example, from a freelance job or seasonal work, it can be a good idea to use the income from the month you earn the least in the previous year when setting up your budget.

Make a List of Your Monthly Expenses

Once you have calculated your income, you’ll want to write down all of the expenses you typically pay during a regular month. This might include:

  • Rent or mortgage payments
  • Insurance
  • Utilities
  • Car payments
  • Groceries
  • Personal care
  • Childcare
  • Entertainment
  • Travel
  • Transportation costs
  • Savings
  • Student loans

You can use your credit card statements, receipts, and bank statements from the previous three months to get a sense of your expenses.

(Wondering how to save money when grocery shopping? Check out these strategies.)

Separate Fixed From Variable Expenses

Certain expenses you pay on a monthly basis are for the same amount every month. These are considered fixed expenses. Other expenses fluctuate from month to month, which are considered variable expenses.

You will want to break your expenses down into these two categories. Examples of fixed expenses might include:

  • Car payments
  • Mortgage or rent payments
  • Set-fee internet service
  • Regular childcare

Some expenses that might be variable include:

  • Gasoline
  • Grocery shopping
  • Gifts
  • Entertainment
  • Eating out
  • Utility bills

It can be a good idea to include a “surprise expenses” category into your budget if you don’t have an emergency fund. This can help ensure that you aren’t caught without the cash you need for an expense that pops up unexpectedly.

Once you have broken down all the categories, assign a spending value to each one. Start with your fixed expenses before estimating your variable expenses.

You can review the last few months of bank transactions or credit card statements to get a sense of how much you spend on these variable expenses if you aren’t sure how much you typically spend.

Compare Your Monthly Expenses and Income

The first thing you will want to look at is if your income is higher than your expenses. If this is the case, it means you have money left over at the end of the month that can be put towards things like paying off debt and retirement savings.

Some people use a 50-30-20 budgeting philosophy when they have more income than expenses. This means that 50% of your budget goes to your essential expenses, 30% goes towards your wants, and 20% goes towards debt repayment and savings.

Are your expenses amounting to more than your income? This means that you are going to make some changes in order to improve your financial health.

Adjust Your Expenses

If you have found that you are spending more money than you are making, it’s time to start looking for variable expenses that you can reduce. Perhaps you could start eating out less or canceling some of your subscription memberships that you don’t use much anyway.

However, it might not be enough to reduce your variable expenses if you are spending a lot more than you make. You might also have to cut down on some of your fixed expenses as well as increase your income in order to end up with a balanced budget.

Check out these budget activities to do this summer if you want to have fun without breaking the bank.

Using Your Household Budget

Now you’ve made your household budget. Congratulations! However, the work doesn’t end here.

You will want to continue to track and monitor your expenses in each of your categories. In an ideal scenario, you would do this every day of the month. You can record this information on the spreadsheet or accounting software you used to create your budget.

When you record what you are spending it can help you restrain from overspending. It can also help you determine where you have problematic spending patterns and where you have unnecessary expenses.

If you record your purchases every day, it will only take a few minutes. It becomes a bigger task if you only do it once a month, though.

Some people use the “envelope system” in order to budget their money. This is when you make separate envelopes for each category and put the allotted amount of cash in each one.

You’ll want to monitor your budget throughout the month. When you have reached the limit you set in a category, you have two choices. You can either move money from another category in order to cover these extra expenses or you can stop spending in that category for the month.

Periodically Review Your Household Budget

The budget you have now might not necessarily be the right budget in six months, a year, or ten years. Maybe you got a new job, moved to a new house, or have had children. Maybe your priorities have simply shifted.

For this reason, it’s a good idea to have a check-in with your budget every few months. You can take a look at whether or not it’s still working for your current needs, realities, and goals.

There’s nothing wrong with making tweaks to your budget if you realize that it’s not working for you in its current form.

Additional Budgeting Tips

Everyone’s financial situation is different, meaning that there isn’t a one-size-fits-all approach to budgeting. Here are some extra tips to help you further tailor your budget to your needs and goals:

  • Consider only using a credit card if you will be able to pay it off in full at the end of the month in order to avoid paying interest
  • Save aggressively if you work on commission to help cover expenses during slow months
  • If you are only paid once a month, divide your payments into weeks to avoid cash flow issues
  • When you have a higher income than your expenses, budget towards your savings goals before you start spending more money
  • Stay on top of whether or not you have underestimated or overestimated your expenses and adjust them monthly
  • Make it a task to improve your financial literacy and learn other financial skills to make sure you’re always getting the most out of your money

Budgeting can help you reach your financial goals and control your spending. It can be easy to avoid looking at your finances, but understanding where your money is going is the first step to becoming increasingly financially healthy.

Do You Have a Cash Flow Problem?

It’s possible you could make a household budget and still figure out that you have a cash flow problem. It is possible to take out a loan to help you get back on top of your finances. However, you want to make sure that you will be able to pay off the loan so you aren’t simply displacing the issue into the future.

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