Each year, many families sit down to determine their annual budget. This conversation is often complicated, frustrating, and discouraging, as managing your finances is hardly ever a comfortable conversation topic; however, a budget is critical for families that are looking to survive, thrive, and save funds in their day to day life. Unfortunately, many people overestimate or underestimate their needs when coming up with a realistic plan of action to achieve their financial goals. In this article, we will share four important factors of a budget.
When you are creating a budget for your family, it is important that all parties have an understanding of what is allowed versus what is prohibited. The numbers associated with each category should be agreed upon by everyone. If your family is not on the same page about the numbers that are in place, it is likely that these guidelines will not be adhered to. When everyone is aligned, it is easier to stick to goals.
In order to bring kids into the budgeting conversation, allocate an allowance that they can use towards their own personal spending. Kids can earn this allowance money by completing chores, being kind, and helping proactively with projects around the home. Many parents say that their children must earn their allowance allocation. With this allowance, help your child determine percentages of the overall total that they can give to local charity and put towards saving. This practice of spending, giving, and saving will help kids develop structure and balance in their financial future.
It is important that a budget is truly inclusive of all your spending. Many people underestimate that amount of money they spend on everyday items or hobbies. In reality, 46% of the adults across Canada say that they adhere to a regular budget. When you underestimate your budget planning, you will likely be discouraged each month. Take the time to realistically determine how much you need and want in each area. Do you like to get your nails done? Do you often splurge on the extra tub of ice cream at the grocery store? Make sure you budget enough in each category that you experience freedom rather than constraint.
Everyone has certain areas of spending that need to be reigned in. We often compromise our goals in order to do the things we enjoy. When this becomes a habit, we stray off course and may lose financial stability. Be honest about the areas that you need to gain self-control in. If you are looking for money saving advice, there are many successful individuals that have tips to help people gain perspective when they are tempted to overspend.
While it can be tempting to cover up expenses and indulge on your favorite items, it is important to be honest about the ways that you are being financially irresponsible. Some experts state that it is beneficial to take a 50/20/30 approach to finances. With this approach, 50% of the paycheck is to be used towards regular expenses, 20% of your finances are allocated towards saving and loan payments, and 30% can be used at your discretion. With this structure, you have the ability to spend money freely while still accomplishing your goals
In your budget, you have the ability to maximize your money to achieve the things that are important to you. Do you want to buy a house or a car in the coming years? Do you want to invest in your retirement account? When you set ambitious goals, you can set yourself up for long-term success. Unfortunately, the reality is that many people across Canada are living paycheck to paycheck, with several being unsure about how they will maintain financial stability in the later years of their life.
While you may have the resources to temporarily live a lavish lifestyle, you may not be setting yourself up for success in the future. Become ambitious about your long-term goals in order to live the life you want both now and in the future. Nowadays, you can invest little amounts of money in the stock market, retirement accounts, and other portfolios. Even a small investment will grow in the years to come. It is estimated that 70% of Canadians do not feel secure about their retirement plan. These same individuals believe that they will need roughly $1 million dollars to live comfortably in retirement. In order to live the comfortable retirement that you have dreamed about, you must have a long-term vision for your financial future.
Defining a budget can be a tricky subject. In order to adhere to your goals, you must be realistic about what is possible with the resources you have. In addition, you must be committed to sticking to your goals even when it is difficult. Budgets are tools that can help you thrive, both now and in the future.