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Take Charge Of Your Finances

Financial Literacy Month: Learn How to Take Charge of Your Finances

Savvy Canadian consumers are learning more about managing money and debt, saving for the future, and understanding their financial rights and responsibilities. That’s because it’s Financial Literacy Month. This year’s theme is, “Take Charge of Your Finances”. We’re joining financial organizations all across Canada to help improve the financial fitness of our residents.

You, too, can improve your financial fitness by taking two very important steps. They are:

  1. Start with a budget.
  2. Set financial goals.

Once you execute these two steps, you’ll find it easy to take charge of your finances and optimize your money management decisions. That means less stress for you…and more money for the things that matter the most.

Start with a Budget

You probably have a good idea of how much money you earn monthly. You probably also know approximately how much is required to cover your housing, utilities, bill payments and other monthly expenses. When money is low, you cut spending. It works. Usually.

Why, then, do you need to get all restrictive about it?

You don’t. The truth is, budgeting is the best way to be the boss of your money. As the boss, you’re in command. In the short-term, a budget helps you make sound financial decisions. In the long run, you’ll discover more freedom and greater options that come from having control.

Here are three of the most salient reasons to budget:

  1. Increase your ability to cover emergencies without borrowing money.
  2. Build savings for the things that are important to you.
  3. Allow you to retire someday.

Win, win, right? So grab a pencil and paper and let’s get at it.

Figure Your Monthly Income

Total all of your sources of income each month. This includes your wages, side jobs, child support, and any other regular income. Bonuses don’t count because you can’t count on them. If you are paid weekly or every other week, calculate your annual take-home pay and divide it by 12 to derive your monthly income.

Sam makes $3,000 every other week.
$3,000 × 26 pay periods in a year = $78,000 divided by 12 months = $6,500.

Figure Your Monthly Expenses

Start with your regular monthly expenses such as rent, cable, phone, utilities and loan or credit card payments. Compile your receipts and bank statements for the past month. Calculate how much you spent and where. If you withdrew cash, try to recall how you used it. Coffee? Lunches? Do not include extraordinary expenses, such as an emergency car repair.

Create budget categories for those expenditures. For example, they may include:

  • Housing
  • Food
  • Utilities
  • Bill payments/Loans
  • Education
  • Entertainment
  • Healthcare
  • Clothing
  • Savings/Emergency fund

Use categories that make sense for you. As best you can estimate the dollar amount spent in each category for the month. If you don’t know, make your best guess.

Evaluate Your Numbers

Subtract total expenses from total income. Do you have surplus income? Are you spending too much? Are you saving for emergencies and for your future goals, i.e., house, vacation, retirement?

Adjust the amounts where needed. Determine where you can spend less or, in some cases, more. Perhaps you need to cut down on your dining out budget and increase your spending on groceries. Are you paying for subscriptions you no longer use?

Be realistic. Don’t arbitrarily cut your transportation budget in half unless you really are going to take the bus to work every day.

Track Your Spending

Now that you have a proforma budget, make it more precise. For the next month, track every penny you spend in your budget categories. Twice a week, or as often as you deem necessary, compare your actual spending to the budgeted amount.

You may want to make further adjustments. Maybe you want to pay down a loan more quickly. Or put aside funds for holiday spending. Perhaps you’ve been underestimating your entertainment budget and realize you’re spending far more than you thought. Not only will this exercise make you more aware each time you reach for your wallet, it will help you identify smart money management changes you can make now.

Set Financial Goals

Although financial goals are discussed after the budget, this is by no means a sequential process. You needn’t wait to set your goals. They provide the rationale for your budgetary choices.

Financial goals serve at least three purposes:

  1. They help you prioritize and make empowering decisions.
  2. They illuminate the choices you have.
  3. They provide a sense of personal accomplishment and satisfaction.

Make ‘em SMART

You may have used SMART goals at work. The acronym stands for:

Specific: How much, by whom and by when.
Measurable: How will you know when you have achieved your goal?
Attainable: Is it reasonably possible to achieve this goal?
Realistic: Is this relevant to your life and your vision?
Time-boxed: Is there a date for the completion of this goal?

You can apply SMART to your financial goals. These goals help you make the best decisions about how you spend and save money. Each person’s financial goals will be different. But they should lead you towards the things you want more of, like savings, and away from the things you want less of, like debt.

Here are some possible areas to consider:

  • Educate yourself or your children
  • Accumulate the down payment on a house
  • Pay off your mortgage
  • Pay off credit card debt
  • Build an emergency fund
  • Live below your means
  • Save a certain amount each year
  • Improve your credit score
  • Start a business

Here’s an example of how to turn desires into SMART financial goals:

Not so SMART: I will put any leftover money towards my store credit cards.

SMART: I will stop using my store credit card. I will pay $100 on it by the 15th of every month until it is completely paid off in October of this year.

Be sure to review your budget now and revisit it every month or so. Is it aligned with your financial goals? Make the necessary adjustments you need to stay on track.

Your Financial Life Under Your Control

Set a realistic budget. Establish your goals. Revise as needed. Follow these guidelines and you’ll be better able to manage your money and save for the future. That doesn’t mean, of course, that you won’t have to give a little to actualize your goals. But it does mean that it will be worth it to you to make the sacrifice.

Don’t let another Financial Literacy Month go by without taking the most important actions for your future.

Need More Help?

Are you still having trouble making ends meet despite your efforts to take charge of your finances? You may find that the budgeting process isn’t quite enough. In that case, professional assistance is just a phone call away. Contact Adamson & Associates for a free, no-obligation consultation.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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