Creating a budget can be intimidating for many people, but it is an essential tool for good financial planning. If the word 'budget' scares you, think of it as a 'spending plan' instead, or think of it as assessing your 'monthly cash flow'. Keep in mind, whichever term you decide to use, your plan, budget or cash flow is not written in stone - you can and should reassess your situation on a regular basis. SISIP FS has a budget form you can download. Keep track and record your expenses for one month.

Here are six basic steps to get you started:

Step 1 - Set goals:

Think about the things that are important to you and your family. Involve the entire family in prioritizing these items so everyone understands that each family member needs to make compromises. Try to set both long term (like paying off the mortgage by a certain date) and short term (buying a new car or appliances) goals. Make sure your goals are realistic, measurable and achievable. Writing down your goals is extremely important. Studies have found that written goals are more often achieved than non-written goals.

Step 2 - Calculate your living expenses:

Make a list of all the expenses you must cover each month, like food, housing, transportation, and clothing. Include fixed, flexible and periodic expenses. Fixed expenses are those that you are committed to on a monthly basis, like rent, loan payments, hydro, etc. Flexible expenses are more difficult to forecast but can be controlled or managed to some extent, like food, clothing, fuel, phone and personal care. Periodic expenses are things that you usually pay once a year, like insurance, gifts, vacation, etc. Next, make a list of discretionary spending, like magazine subscriptions, that cup of coffee you buy on the way to work every morning and those magazines you buy 'on impulse' at the grocery store. Don't forget to include savings for future purchases like a new car, vacation, RRSPs, etc.

Step 3 - Estimate your income:

This may seem simple if you receive the same pay every month. However, don't forget about GST rebates, family allowance, interest incomes, gifts, or the sale of unwanted items. Just be careful not to over-estimate your income.

Step 4 - Compare your income with your expenses:

If your expenses exceed your income, you have three basic options. Your SISIP FS Financial Counsellor can help you decide which option is best for you:

Step 5 - Develop a spending plan:

Write down how much you plan to spend in each category, try to stick to your plan, and keep track of how much you actually spend in each category every month. If your actual spending is quite different from your plan, make adjustments so you can improve the next plan.

Step 6 - Review your spending plan:

Revise your plan if it's too difficult to stick to, doesn't accurately reflect your actual spending, or if your goals change. Don't expect to get your plan right the first time. With each succeeding budget you can expect improvement. An annual review of your budget will allow you the flexibility to adapt to any changes in your financial situation or goals. By thinking through your expenses, setting goals and keeping records you'll develop a good idea of what is important to you and your family.

Download Budget Form