Budgeting is always important, in 2023 it has become more important than ever. Inflation and high debt costs have made everything more difficult and stretched everyone’s budget. To help we have outlined a few steps to follow when making your budget.

Step 1: After-Tax Income

The “Top” line is your after-tax income or what you have the ability to spend. For many, this is fixed but for some, this fluctuates. If this fluctuates you will need to come up with a monthly average.

Step 2: Gather ALL your expenses

People usually consider expenses as your mortgage, phone bill, hydro, etc. But you should include everything that leaves your account Netflix subscription, RRSP contribution, etc. These are all costs to maintain your life or prepare for your future.

Step 3: Organize ALL your expenses

Every expense should be categorized as one of the following:

NEEDS
WANTS
SAVINGS or DEBT REPAYMENT

You should also allocate 10% of your income for incidentals.

Details and examples of what goes in each category:

NEEDS (50% of Income)

Food
Housing Costs
Utilities
Transportation
Insurance
Minimum Loan Payments
Childcare
Basic Clothing
Anything else that is required in your life to live and work 

WANTS (20% of Income)

Going out (Entertainment)
Additional Clothing
Entertainment Subscription Services
Unneeded Renovations
Leisure Items
Purchasing lunch at work
Anything else that is not required in your life to live and work

SAVINGS or DEBT REPAYMENT (20% of income)

Retirement Contributions
Saving for an emergency
Additional Debt Payments
Savings Contributions

Normally, this split would be 50/30/20, with 30% in WANTS but in today’s inflation times NEEDS have increased and that WANTS area must be lower than before. We recommend a 50/20/20/10 split with 5-10% excess for fluctuations and things you may forget to account for (There is always something). It is NOT recommended that any of these areas be dropped to 0%. While wants are above what is required, they may be required for your mental well-being to properly handle the NEEDS category. It is always recommended to save something and pay down some debt when able.

Understanding and accepting your budget is part of proper financial planning, with very often accepting is the hardest part.

Sincerely,

Justin, Konrad, Merriel

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