Tip #18 - Make a Budget

Tomorrow's a big day for me! I'm moving into a shared two bedroom apartment, so for the first time in several months I can actually budget some expenses. Living without a fixed address can be expensive because it's hard to plan where all your money will go, and how much you will have at the end of the month.

I've decided that, because I have an unsteady income through self-employment, I would set myself a strict budget which I know I can manage for at least six months on my current account balance. That amount is $1000 Canadian per month. This will be really really hard, but I think I can do it.

To make a basic budget, follow these simple steps:

1- If you can, write down how much you make each month.

2- Write down your fixed expenses: These are things which are not optional, which have a fixed monthly or yearly cost, and which can't be negotiated. Things like mortgage, rent, car payment.

[3- Write down your debt repayment costs: If you have debts, you need to make note of how much this is costing you each month. Total debt repayment shouldn't be much more than 8% of your income unless you're amazingly rich. It must be manageable - without only paying the minimum amount.]*

4- Write down your non-luxury variable expenses: Things like food, phone bill, Internet, transportation (gas, bus pass), and insurances come into this category. These expenses are ones which you have some flexibility over how much to spend, but still have to be paid each month.

5- Write down your luxury expenses: Beauty costs, entertainment, sporting events, clothing all fall into this category. I would personally put a gym membership here too, but that's up for debate depending on your situation.

6- Write down how much you are putting aside in savings and/or retirement each month. This can't be 0!

*Note: I put #3 in brackets because, like myself, you may have no debts. This should mean more money in #5 ;)

The total of 2-6 shouldn't exceed the number in 1 - if it does, you will simply increase your debts further. To fix this, go through your luxury and non-luxury variable expenses to see where you can cut back. This may take some time and effort, and may well be very difficult. It requires a very future-oriented thought process. You need to know why you want to save more money, why it will be beneficial in the future, to your family or to yourself.

7- STICK TO YOUR BUDGET

Because of my uncertain income, I came at my own budget in a slightly different way, by deciding how much I was willing and able to spend each month, and working backwards to see how much I could spend in each category.

Here is my final monthly budget:

Rent: $430 (all inclusive, including Internet and cable)

Phone: $46 (after taxes)

Food: $148.75 ($35/week)

Transportation: $106.25 ($25/week)

Entertainment: $63.75 ($15/week)

Clothing and gifts: $63.75 ($15/week)

Other: 141.50 (includes insurance, sundries, and any 'float' needed in other categories)

Total: $1000

So that's a pretty tight budget. You'll notice that I have no line in there for "savings" - that's because, since I don't have a steady income, I plan on putting everything outside the $1000/month into savings. (What can I say, I'm a saver!)

I will be posting quite a bit about how I've managed to stay within this budget. I think the food bit will be the hardest. $35/week for food just doesn't go very far, despite food not being taxed in Canada. I'm slightly cheating by stocking up with "essentials" using Christmas money (about $125 worth), but otherwise all my food will have to fit within this budget. Wish me luck!