Financial difficulties arise from many types of problems. Better money management can help you prepare for the unexpected events that cause so many people financial problems. Better budgeting will help you keep better track of your money, save money and get started building your net worth. You'll also be better prepared for the unexpected expenses that always seem to come our way.
Money Management
Have you planned for all these needs?
- Meeting your monthly financial responsibilities
- Emergency fund for unexpected expenses or loss of income
- Saving for specific items like major appliances or renovations
- Retirement savings
- Education savings for your children
- Travel and lifestyle goals
Good money management begins with setting goals. Goals give you a specific target to aim for. If they are specific, measurable and realistic, they can motivate you to save money, spend wisely and enjoy life.
Once you have identified your goals, you need to:
- Determine how long it will take you to achieve each goal and how much money you'll need;
- Set aside a certain amount of money each week or each month to reach that goal;
- Ideally, open a separate savings account just for these savings goals.
A good budget forces you to place a value on your spending. For example, some people would rather have money in their budget for weekly movies or restaurants. While others would rather have a larger television set for a home theatre. Budgeting is simply keeping track of your monthly costs and making sure your expenses are under control.
One way to make budgeting easier is to do it on the computer – either in your word processing software or on a spreadsheet.
Or you can just use a notebook. Your local library will also have plenty of books with tips on budgeting. Many families find that doing budgeting as a family project teaches children how to better manage money when they grow up.
Keep things realistic with your budgets. Don't be afraid to adjust your targets if you're finding it too hard or too easy. Just be sure you're clear about what financial goals are absolutely necessary, and which ones would be "nice-to-have" luxuries that you may have to skip if money gets tight.
Here's a simple way to budget effectively
For best results follow these simple steps. On a sheet of paper:
- List income from all sources – net amount received and timing.
- Separate expenses into three columns – weekly/monthly/annual.
- Regular expenses – monthly rent, weekly work lunches, etc.
- Irregular expenses -- things like auto repairs, home repairs, etc.
- Convert all expenses to monthly expenses (divide the total by 12)
- Compare monthly expenses to monthly income.
- Make adjustments to your expenses so they are all covered by income.
- Match the timing of the income to the expenses and determine what income source will cover which expenses.
- Select a method for paying for each expense – cash for work lunches, credit card for groceries, cheque for rent, RRSP, etc.
- Keep records and compare your actual expenses to your budget every 3 months. Make adjustments as required or as your circumstances change.
- Infrequent expenses such as gifts for birthdays, weddings, donations
- Vacations
- Repairs and maintenance to your house or car
- Infrequent consumer purchases such as carpet replacements or down-payments on a vehicle
Don't make the same mistake! Plan and set aside money in advance for these purchases.
Spending and Shopping Habits
Most people spend too much money on food. Very few of us examine our grocery shopping and food-use habits. Here are a few tips that can help:
- Calculate your current spending habits by tracking all of your receipts, including those from convenience and specialty stores, for a one-month period.
- Calculate the amount you spend on each grocery category including basic items such as flour, sugar, bread and milk, convenience foods, meats, poultry and fish, vegetables, non-edibles, cleansers, detergents, paper products, and pet supplies.
- Look at your lists carefully and make some comparison-shopping trips to different stores.
- You may be surprised to find how much cheaper some store brand products are than the more expensive national brands.
- Look at your list with an open mind and ask yourself, "Were these items we really needed or just wanted to have?"
Spending money on needs rather than wants could be the first step towards reaching your spending goals.
Some grocery-shopping tips that help you save money
- Use a shopping list – it helps limit your purchases to "need-to-have" items.
- Take advantage of coupons, sales and promotions when planning your meals; it helps cut down on your purchases.
- Never shop for food when you're hungry!
- Buy the larger economy sizes of items. This cuts down on the number of trips to the store, which cuts down on impulse purchases.
- Avoid isles that have nothing on your shopping list. This also cuts down on impulse purchases.
- Shop alone whenever possible. Children and spouses tend to encourage impulse buying.
- Look at the middle shelves last. Stores place items at eye level that they really want to sell – whether they're the best value or not. Check the top and bottom shelves first.
- Displayed items are not always the best buy. Take a moment to figure out if it really is a "bargain."
- Shop around the perimeter of the store. Supermarkets tend to place the healthier foods around the outer perimeter of the store, while junk foods tend to be in the centre.
