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Establishing a Monthly Budget

Kaleido's Blog

Written by: Kaleido

March 15, 2022

In order to properly manage your finances, establishing a monthly budget is essential. Indeed, making a detailed budget allows you to anticipate and better control your spending. It is an effective way to build your savings and to clearly envision the state of your finances in the mid and long term. You can tailor your monthly budget to various areas of focus such as a personal budget or a family budget.

Why Make a Monthly Budget?

Establishing a monthly budget is very important because it gives you a detailed view of the ensemble of your expenses and gives you a precise idea of the amount you need to survive on a weekly or monthly basis. A budget provides a clear picture of money coming in and money going out. It also helps you to identify the expenses that could be reduced, or even completely eliminated. In fact, the most important principle to keep in mind regarding a balanced budget is that the goal is simply to keep your expenses lower than your revenue. If your situation is otherwise, you must absolutely (and quickly) revise the manner in which you are managing your money.

To recapitulate, making a budget is the necessary precursor to painting an accurate picture of the state of your finances and to ensuring that you can provide for the future.

How to Establish a Monthly Budget

All told, establishing a monthly budget is not very complicated: it simply requires writing down your total revenue, and then subtracting your total expenses in order to arrive at the amount that is left over and available.

However, if you want to establish a realistic budget that allows for wise spending and a certain amount of investments, the task gets a little more challenging because savings absolutely must be planned for in the budget.

Know Your Revenue Down to the Last Detail

The first step is to list your sources of revenue. It is very important not to leave anything out if you want to arrive at a budget that reflects the reality of your financial situation.

The revenue column must therefore include all sources of regular income, such as:

  • net salary income (yours and that of your spouse if you are in a couple);
  • alimony (if applicable) ;
  • rental income (if applicable);
  • government benefits (if applicable);
  • pension or other benefits (if applicable);
  • investment income (if applicable);
  • tax refunds (if applicable);
  • other revenue.

Draw up a List of Expenses

In order to easily establish your monthly budget, you must divide your expenses into several categories. Start with the broadest categories and divide them further into subcategories related to your personal spending habits and lifestyle.

You could, for example, split your budget into three sections: living expenses, recreational expenses, and savings.

  • Living Expenses:
    Living expenses, otherwise generally known as fixed costs, include groceries, rent or mortgage, as well as regularly recurring costs like Hydro, phone bills, car insurance, gas, or bus/metro pass, etc.
  • Recreational Expenses:
    These expenses are the most important because this is the category for which we most often forget to enter items, so take the time to ensure that you include all pertinent details. These include the regular Friday lunch with colleagues, going to the movies, your daily coffee, or even shopping with friends. Don’t forget to take into account things like booze, an evening out, and any other little extra that may come up. Since these expenses are not fixed, it is a good idea to err on the side of caution by slightly overestimating the amounts for each one when you are planning. The resulting buffer can prevent problems down the line. It is of the utmost importance that you be rigorous in managing your monthly budget.
  • Savings:
    The last column of your budget is for the money that you put aside. Whether you are saving up for your next trip or to make contributions to your RRSP, or to an RESP for your kids, it is crucial that you enter every item. Actually, you can make use of our RESP calculator to help you with this task.

This simple tool will help you calculate how much your child’s postsecondary education could cost.

few secondes!

Mistakes to Avoid When Creating Your Monthly Budget

The biggest mistake when making a budget is forgetting to enter certain expenses that could, in the end, represent a substantial amount.

To establish an effective budget, be mindful of:

  • making your calculations accurately. Don’t adjust amounts that may seem too big or small based on your gut feeling; be disciplined.
  • identifying clear goals. This could as easily be in terms of reducing your spending as it could be putting a specific amount aside each month. Whatever your objective is, the figures must be precise and determined in advance. They must also make sense for you.
  • not forgetting to include any items that could negatively affect your budget. Be cognizant of income tax, debts, rent, contributions, donations, etc. Don’t forget to create a section for your recreational expenses, but keep in mind that these must never encroach on the other expenses!

Using a Monthly Budget Calculator to Save Time and to Make a Savings Plan

There exist numerous tools that can help you to calculate your monthly budget more easily. For example, the Canadian Government has created a budget-planning tool. It factors in your family circumstances, your age bracket, your housing situation, your employment status, and your budgetary goals. The budget planner can be adapted to your unique personal situation.

Kaleido has also put a similar tool at your disposal. It was created by our partner who specializes in family finances, and it can be of great help to you in planning your budget, as well as in managing your finances effectively and easily.

Calling on the Help of an Advisor to Create Your Monthly Budget

If you wish to ensure that your monthly budget is optimum, you can call on the help of a professional. The scope of your budget and of the number of expenses to consider can make the task of creating a budget more difficult than it might seem.

For this reason, consulting a financial advisor can ensure that you don’t leave out any details. Kaleido clients can benefit from the financial family coaching services provided by our qualified partners. They can get you off to a good start in managing your finances effectively and with peace of mind!

Are you interested in adding an RESP to monthly budget?