by Nora Edwards, Licensed Insolvency Trustee
Every parent knows just how busy – dare I say hectic – family life can be. Between work, school, extra-curricular activities, making sure everyone is fed and clothed and still trying find the time to sleep – you're probably wondering who in the world has time to budget.
But the truth is as dynamic and time consuming as family life can be, it's also pretty expensive. Without a plan to get or stay out of debt, many households may inadvertently be setting themselves up for failure.
That's the bad news. The good news is that budgeting doesn't have to be a complicated or drawn out affair. By following a few simple steps, any family can get themselves confidently on the road to financial well-being and prosperity – regardless of what expenses they have or how much time they are able to dedicate to the task.
Step 1: Setting Priorities
The first and most important step of any budget is to understand what matters most for your family.
It could be as simple as just keeping a roof over your head and putting food on the table without relying on debt to make ends meet. It could also be as complicated as affording for all your children to take part in the sports, clubs and activities they're passionate about and the peripheral costs that go along with them.
Every family will be different, and that's okay. Odds are there will be several financial goals you're trying to balance. What's important is that everyone is clear on what your priorities are and their order of importance. That way everyone is working toward the same shared goal and are mutually contributing to your family's long-term financial success.
Step 2: Income
The next step is to figure out how much money is coming in each month. This includes all employment income, government subsidies (childcare benefit, GST/HST refunds, etc.), investment income and any other money that can be consistently relied upon to support your family. Whatever this amounts to will be the upper limit of what you can afford to spend, so it is important to know it intimately and immediately off-hand.
Also, if there are any sudden changes to your family income – such as a job loss or illness – knowing what that reduction will be is helpful for quickly making the necessary adjustments to weather that storm.
Step 3: Expenses
Just like you want to know just how much money is coming in each month, you'll also want to know exactly how much money is flowing back out. For your budget to work properly, this number needs to be the lower of the two.
Begin by documenting your fixed expenses – such as rent or mortgage, property taxes, car payment(s), cable and internet, mobile plans and insurance; all the costs that stay consistent from month to month.
Next, estimate your variable monthly expenses by calculating the average of what you've spent on each over the past six months. These might include utilities, groceries and fuel costs. Finally, decide how much you would like to set aside for savings. Remember, many irregular expenses such as birthday or Christmas gifts may not fit neatly in any of the above categories. Be sure to include them in your savings plans to avoid being caught off guard when they come up.
And, of course, if you have any outstanding debts, you will also need to factor those into your expenses as well. Ideally, paying these off will have been listed as one of your top priorities.
Step 4: Tracking and Maintaining
This is the tricky part. You know how much money you're able to spend each month and you're aware of how much money you need to spend each month. Now you must do the hard work of staying within that limit – which is usually easier said than done.
Everyone has been there. You rush home from work, drive one child to dance class and quickly dart across the city to drop the other one off at hockey practice. Without time to make dinner, you find it easier to just stop by the closest fast food drive through on the way home. After two weeks of constantly telling yourself it's "just this once", you realize you've spent your entire food budget for the month.
Sticking to your budget requires continually planning and tracking your spending. It means sitting down at the beginning of the month and looking at your family's schedule, so you can plan out grocery trips, set time aside to prepare meals in advance, anticipate any irregular costs and solve any potential challenges before they arise. It also means meticulously documenting every dime you spend. Whether you use an app, a spreadsheet or good old-fashioned pen and paper – having a running record of what you've purchased, and your available budget remaining is the best way to keep your mind clear and reduce the stress and anxiety in your already busy lifestyle. It has also proven, time and again, to be he most effective way to reach your financial goals.
Step 5: Review and Re-evaluate:
Finally, remember that your family is dynamic and constantly changing. So too are your needs, wants, finances and priorities. Set aside time –quarterly, every six months or annually – to review your budget and goals. Make adjustments as required and keep the lines of communication open. That way everyone will feel like they're contributing to the same result. By working together, your chances of getting wherever you want to go will be much improved and you'll find a lot more joy and cooperation on your journey.
If you and your family are struggling to balance your budget due to overwhelming debt, a Licensed Insolvency Trustee can help. During a Free Confidential Consultation, we will review your financial situation and all your options to determine which Life Changing Debt Solution might best fit your unique needs. Together we can get you on track to the financial fresh start you deserve.
Nora Edwards is a Licensed Insolvency Trustee with MNP Ltd., serving clients in Burnaby, Port Coquitlam and Port Moody. To learn more about how Nora can help, contact her directly at firstname.lastname@example.org or 778-374-1850.