When I told my editor that I wanted to write a column about budgeting, he described it as “a well-worn path.” He’s right. But it could also be called, to paraphrase Robert Frost, “the path not taken”.
Even with the aid of Google I could not find any statistics on the number of Canadians who actually have a family budget and stick to it. But based on informal polls at some of my seminars, my guess is that fewer than half of us keep a close watch on our spending habits. Most families seem to fly by the seat of their pants, which may explain why our personal debt has hit record levels.
I know, you’ve heard it all before. Budgets are good for you, like healthy eating. The problem is that, like spinach, they’re not much fun. No wonder people often use any possible excuse to avoid the perceived drudgery of creating and monitoring a family budget.
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I’m not going to sugar-coat this and pretend that budget-making can actually be a pleasure. But I will tell you this: your whole lifestyle may end up being a lot more enjoyable if you set up the process and stick to it.
In fact, you may discover that your money can stretch farther than you ever dreamed possible. The starting point is to understand which expenses you have the most control over, and which are more or less fixed.
Let’s start by looking at a typical household’s spending. These figures (rounded) are based on a 2009 survey from Statistics Canada, using after-tax dollars. See how you compare.
Housing – 27 per cent
Transportation – 19 per cent
Food – 16 per cent
Household operations and furnishings – 12 per cent
Recreation, education, reading – 12 per cent
Clothing and footwear – 6 per cent
Health and personal care – 5 per cent
Tobacco and alcohol – 3 per cent
Note the high percentage we spend on transportation – much more than on food. And since this survey was done in 2009, that percentage may be higher now given what has happened to the price of gas. If you’re looking for ways to save, that’s a logical place to start. Housing costs are pretty much fixed but you may have some flexibility in your transportation budget.
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What’s missing from this list? For starters, there is no specific provision for debt repayment. Some of that is incorporated in the housing costs, which include mortgage payments, while transportation may include the cost of a car loan. But there is nothing to cover credit card balances, student loans, etc. Looking at these numbers, you’d think the average Canadian household carries no debt, which we know is not true. So for your personal budget, you need to add another line to cover any such costs.
There is also no category for savings. At a minimum, you should aim to save 10 per cent of your income in some form or another.
So what should you do with this information?
If you already have a budget, start by comparing the average percentages to your own household allocations. If you are spending more than you should in some categories ask yourself why. See if there are some savings opportunities available and, if so, make revisions.
For those who don’t have a budget, use the StatsCan figures as a model but add new lines for savings and consumer debt repayment. The latter is especially important: everyone needs to see exactly how much of the monthly income is going to servicing debt. For many, it may be a revelation — and provide the motivation to pay down that debt more quickly.
Of course, you need to make sure the budget balances. If it doesn’t, start looking for some places to cut back — and that does not mean your savings. That should be one of the last areas you touch. As a recent Vanier Institute study by Roger Sauvé on family finances puts it: “Families . . . need to make tough choices regarding incomes, expenses, savings and debt. For many Canadians, the primary goal in 2012 will be to reduce expenses and debt to meet their short-term and the long-term financial goals.”
If you don’t already have a budget, there are plenty of free spreadsheets available on-line. One website worth visiting is http://christianpf.com/10-free-household-budget-spreadsheets/. It offers 10 different types of budget spreadsheets – pick the one that works best for your needs.
I like the Personal Budgeting Spreadsheet which is a neat program with multiple screens that you can download directly into Excel. It looks a little intimidating at first glance but you’ll find it’s actually quite intuitive and easy to set up.
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There are several other useful spreadsheets on the site including a family budget planner, a wedding budget template, and — especially valuable for indebted Canadians — a debt reduction spreadsheet.
If you’re prepared to spend some money for a more sophisticated program, take a look at Quicken. It has all kinds of bells and whistles and you can even sync it to your bank account and pay bills. One of the features is a graphing system that shows at a glance how your spending for the month compares to budget.
But you don’t have to spend one penny to get a good budget spreadsheet so cost is no excuse for not setting up a plan. What you do need is motivation – and only you can provide that.
Gordon Pape is editor and publisher of the Internet Wealth Builder newsletter.Image: Shutterstock.