A mother and daughter counting money taken out from a piggy bank

Budget your way to wealth

Just under half of Canadians (49%) have a household budget – and yet those who take the time to develop one are significantly less likely to fall behind on financial commitments, spend more than they earn or borrow to cover day-to-day expenses, according to a survey by the Financial Consumer Agency of Canada. They’re also much more likely to be paying down debts (including mortgages) more quickly.

Budgeting is clearly an important contributor to overall financial health. So why do so many people resist it? The most common excuse given by survey respondents was that they didn’t have enough time for it or found it boring. But the fact is, budgeting doesn’t have to take a lot of time and, while it may not be the most exciting thing you do this week, is that really a good reason to skip a process that allows you to make conscious choices about your spending so you can create more wealth?

Three steps to a budget

1. Add up your monthly income

Start budgeting by listing all sources of money coming into your household, after taxes and other deductions, every month. This may include employment income (from salaries, contracts and self-employment), spousal and child support, pension income and/or investment income. If some sources of income aren’t predictable and regular, smooth out the ups and downs by looking at one year’s income and dividing by 12 to estimate monthly income.

2. Add up your monthly expenses

Next, list all your expenses in two categories: essential and discretionary. Essential expenses are the costs you cannot avoid – your “needs.” Discretionary expenses are the extras that make life more fun but that aren’t necessary to keep your household running – your “wants.” For costs that aren’t consistent every month, check last year’s bank account and credit card statements and calculate a monthly average. Include any regular amounts you set aside towards your savings.

3. Subtract your expenses from your income

Now it’s time for a quick check to see if your current budget is in the black, with more income than expenses. If it’s not, and even if it is, review your expenses to see if there are any areas where you feel you’re overspending or that could be trimmed without affecting your lifestyle (for example, by consolidating services with one provider to get a discount). Keep in mind that you can redirect any money you free up to fund your short-term and long-term goals.

  • Take budgeting to the next level
  • What you learn from putting together a simple budget can help you make more informed decisions about your overall finances. Specifically, with a budget, you can:
  •  See exactly how much income you need to cover expenses and how much is left over
  • Identify opportunities to reduce or eliminate certain costs to build wealth faster
  • Determine whether you can accelerate debt payments to become debt-free sooner
  • Calculate how much to accumulate in an easily accessible emergency fund (aim for six months of expenses)
  • Accurately assess your need for income protection (disability and critical illness) insurance and life insurance
  • Allocate realistic, sustainable amounts towards long-term savings to “pay yourself first”

Speak with your Raymond James advisor to get expert guidance on budgeting and, once you’ve created your budget, work together to apply a more thorough understanding of your cash flow to your financial plan.

Start building your budget with a step-by-step tool

The Financial Consumer Agency of Canada has created an online budgeting tool, complete with tips, guidelines and alerts.

After building your budget using the tool, you can see how your expenses compare to the average Canadian’s, view suggestions for improvement and export your information to a spreadsheet.

Statistics and factual data and other information are from source Raymond James Ltd. (RJL) believes to be reliable but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd. (“RJFP”), a subsidiary of Raymond James Ltd., which is not a Member - Canadian Investor Protection Fund. When providing life insurance products, Financial Advisors are acting as Insurance Representatives of RJFP.