Are you looking to grow your savings? Follow these five steps to create a monthly budget that will help you manage your money more effectively.
- Identify your financial goals
Are you paying off debt, saving up for a car, a house or your retirement? Figure out how much money you need to meet your various goals. Once you’ve drawn up your budget, you’ll be able to set deadlines.
- Categorize your expenses
Common categories include rent, groceries, energy bills, insurance, memberships, subscriptions, gas, car maintenance, public transportation, cell phone, internet, clothes and social outings. As a rule, narrow categories are more useful. For example, if you spend a lot on books, coffee or beauty products, make separate categories for these purchases.
- Track your spending
Look at your spending habits over a month-long period. The old-fashioned method is to use a notebook or spreadsheet. Keep your receipts and log and label by category every purchase and expense.
Alternatively, you can consult your credit card and bank statements, if you never pay using cash. However, a problem with this method is that you may forget what some transactions on your statement were for.
Another method is using an app like Mint or Dollarbird, which links your credit card and bank accounts and tracks your spending.
Take into account that your spending habits may differ in certain month (for example, around Christmas and in months with birthdays).
- Add up your income
Calculate how much money you have coming in per month. This may include your job earnings (after taxes), income from investments, an allowance, child support payments, and so on.
- Create your budget
There are different ways to structure a budget. A simple format is to list in one column your expense categories, put how much you actually spend in a second column (labelled “actual on each one and put in a third column (“projected”) how much you plan to spend next month. This can be done in an Excel spreadsheet or with pen and paper. Alternatively, apps like Mint have a budget tool.
Once you’ve filled in the “actual” column, subtract from the total your monthly income to calculate how much you’re currently saving. Consider this sum in light of your financial goals. For the “projected” column, determine which of your expenses you can reasonably reduce to save more money.
Do your best to stick to your budget and update it monthly.
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