While budgeting is often regarded as something that is required when finances are limited, it is a highly effective tool for sustainably building wealth. An effective budget is crucial for understanding and directing where your money goes, allowing you to determine how much you can save or invest for the future. As a leading provider of investing solutions, the team at PHL Financial Group knows how important budgeting is for creating a sustainable investment plan. That is why we have compiled a list of 4 tips for effective budgeting to help you build your budget and get started.
Read our 3 tips to successfully plan for retirement.
To create an effective budget, you will need to complete the following steps:
A crucial element of budgeting is determining your income and expenses, or “money in vs. money out”. To start, calculate your total earnings through paycheques, freelance work, investments, and other sources. Next, determine where your money goes each month by subtracting your rent/mortgage, energy expenses, cable/internet fees, grocery costs, car payments, insurance costs, and other expenses from your monthly income. This will help you determine if you have any money left over each month or if you will need to reduce spending in certain areas.
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When creating your budget, it is crucial to ensure that your goals are realistic and achievable. If your goals feel too ambitious or you struggle to meet your goals, you will be far more likely to abandon your budget and slip into poor spending habits. To set a realistic budgeting goal, consider the reason(s) why you want to build a budget. Whether you are looking to clear up credit card debt, saving up for a down payment, or want to clear up funds for investing, keeping these reasons in mind is the first step to setting realistic goals.
If you need to cut back on spending or put money aside for a large purchase, you will need to ask yourself if you truly need certain items or if you only want them. For example, you may not need to spend as much money on entertainment or eating out as you currently do. If spending money on certain items will only move you further away from your financial goals and you can go without them for a few months, they are likely a want and not a need.
Surprises happen, especially when it comes to finances. Whether you made an impulse purchase or need to spend money on repairs for your home or car, these expenses can throw your entire budget off. That is why it is crucial to ensure that you have financial “breathing room” each month in your budget, allowing you to cover unexpected costs without increasing your debt.
To more about our investing solutions or to discuss your investment goals, get in touch with the team at PHL Financial Group. We can be reached by phone at 604-579-0844 and will be happy to answer any questions you may have regarding our services or your financial wants and needs.