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The foundation behind any good financial plan is a budget. Regardless of your socioeconomic situation, a budget is a tool that guides you to your financial goals. Though it is often misrepresented as something that restricts you, in reality, it is a tool that can free you from financial distress and help your reach your financial goals more efficiently. It may seem like a burdensome process at first, but in truth, a budget is an easy and valuable tool that you can implement in your life.
What does the average Canadian budget look like?
What Is a Budget?
A budget is a tool that is used to plan, control and evaluate your spending. It involves creating “spending pockets” based on different categories such as rent, groceries, leisure, and saving. Depending on your income and saving goals, each category will have a limited amount of money allocated to it. Once you have this visual image of how much and where to spend your money, it opens up a pathway to your financial goals. Your focus is clear and it becomes easier to say no to impulsive desires and other poor spending decisions. Why? Because you’re not blindly trying to save, every penny you salvage now has a purpose, a bigger financial goal.
Track Your Spending
Tracking your spending is an essential component in utilizing a budget. It is a key step that will help you respect your spending limits and identify any bad spending habits you may have. For example, you may realize you’re paying too much for your phone while not taking advantage of all the add-ons that make your bill so expensive. Downgrading your plan is just one small thing that you can change to reach your financial goals.
There are many ways to track your spending, from self-sufficient ways to completely automated ones. You can budget by merely writing your spendings down on a piece of paper or by entering it into an excel sheet. You can also make use of personal budgeting apps that can connect to your bank accounts and keep track of things for you. They typically also have extra features that can allow you to better visualize your spending habits, making it easier for you to remedy any concerns you have. Depending on your preference you can opt for either, the only difference is the amount of effort you’ll need to put in to keep on top of your budget.
Have you heard of the 50/20/30 budget? Learn more here.
Bettering Your Financial Well-Being
Your financial well being is measured by how comfortably you can manage your day-to-day commitments, how financially secure you are to handle any financial set-backs and how much financial freedom you have to enjoy life. The more confidence you have in each of the points, the greater your financial well-being. This can be achieved by spending wisely, saving regularly and not taking on unmanageable amounts of debt. One way to ensure good financial decisions is by increasing your financial literacy. A financially literate person is defined by being able to budget, track spending, pay off debt and save. As such, we recommend creating a budget as it gives you the ability to pay bills on time, track spending and save money, all of which leads to better financial control.
The Bottom Line
Budgeting may seem like a cumbersome task or an inconvenient chore but once you start everything snowballs from there. Your understanding of how money moves, your ability to pay bills on time and your ability to save will all increase by budgeting. There’s an ocean full of advantages when it comes to budgeting. With a little effort from you, you can reap the many benefits a budget can provide you.
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