Expect the Unexpected in Life: An Insurance Blog

Liz requested that I write a little bit about how to come up with a budget for yourself including how much you should spend on what.

In my past I was very careless with my spending. I bought whatever I wanted when I wanted even if I didn't think I could afford it. I lived paycheque to paycheque while I had one coming in. I'm a changed man! :P lol. Now that Megan and I use a budget we've been able to curb our unessesary spending (mostly) and save for the things we've really wanted like our wedding, a trip to NYC this Nov., paying off debt etc.

A budget is key if you're looking to manage your money and your spending. You can see your entire necessary expenses and see how much you have left to spend after this. This way you always have a handle on where your money goes.

Before I get into how to make a budget here's something I found in another blog about how to divide your budget.

Housing with insurance 25-35%
Transportation with insurance 10-20%
Food 15% - 20%
Debts 10%
Savings 10%
Recreation 5%
Health Care 5%
Utilities 5%
Others 10-15%

http://goodlifebudget.com/budget/how-to-divide-up-your-budget/
He compliled these numbers from articles that he found. They seem very reasonable to me.

Now life is never perfect (sorry perfectionists). There's always something unexpected that will make you spend more than you wanted. In order to find out what percentage of your income you are spending on what you first need to find out how much you are spending on everything.

Here's a link to a budgeting tool from RBC: http://www.rbcroyalbank.com/savingsspot/easy-budgeting-tool.html. This is basic and it shows you how much you have left to spend each month or if you are over your spending.

What Megan and I have done is taken an idea like this and made it into an excel spreadsheet (I have a few made that I can send to you if you want). Basically you take the categories from the budgeting tool and add 12 months. Make sure you have your bank/credit card statements handy so you can tell exactly what you've spent money on.

First you want to have your after tax income.

Second you should have all fixed expenses:

Mortgage/Rent
Utilities
Transport
Phone/internet/cable
Debt
Gym membership
Savings
Insurance

Anything that's a monthly fee/deposit. Make sure you include savings here even if it's 0$. You can change this number at the end. There's a saying that my dad likes to tell me and that I've seen on the interwebs quite a bit. "Pay yourself first!" Carrying a savings can help you be less stressed about your money and when you aren't stressed life will be more enjoyable.

Next you find all of your variable expenses.

Food
Booze
Gas
Clothes
Entertainment
Misc.

Anything that could be different every month. Always make sure you add in the Misc. In a second worksheet list exactly what each of the misc. expenses were.

Minus all of the expenses from your after tax income. This will show you how much money you have left over each month. Once you see this amount you can make an educated decision on how much you'd like to save. If you'd like to start a TFSA or RRSP let me know, it can be a monthly deposit from your account so you don't even have to think about it.

It's a great idea to keep your money in a savings account until you need it. This way if you don't spend all of your money the remainder stays in a savings account where it's easily accessible. This is called your emergency fund & everyone should have one. This is in the event that something happens that you didn't expect (expect the unexpected!) you don't have to go into debt.

Generally an emergency fund should be 3 months of your income (this is usually how long it takes for disability insurance to kick in). However if you're just starting just make sure it's a comfortable amount for you. Any extra above your emergency fund amount should go into a higher rate of return savings like a TFSA or RRSP.

Take your categories and find out the percentage you spend of your income on each and compare it to the percentages above. My guess is there will be something you love to spend money on that you don't need to spend as much money on each month ie. booze. Cutting back a little on your spending in certain areas will help allow you to start saving some money.

If you want my spreadsheet let me know I can send it to you by e-mail! Good luck with your budgets! I was always intimidated with budgets before, probably because I didn't want to face the reality of my spending. However, once you face reality your eyes are opened to new and exciting things!

Sorry I'm posting this today. I meant to do this last night but got sidetracked with going to see the movie in the park! I recommend Coroline to everyone!

See ya!

Mike