Budget Plan – How To Create a Budget In 4 Simple Steps – Part 2 of 2

Info at Info

Please read the disclaimer before you continue.

In the last post on March 24, 2009, you were given a free budget spreadsheet that allowed you to analyse your income and where it goes. In this post we will look at the spending guideline, which outlines where your money should go.

The guideline below shows what the proper allocation of your money should look like. In the free income statement sheet you will have your own pie chart to compare to this guideline.

Housing 35% This should be you biggest category when looking at your expenses. This section includes: Mortgage, rent, taxes, utilities, insurance and repairs and renovations.

Living

Expenses 20% You have the most immediate control over this section. This section contains most of your variable expenses (expenses that are not fixed). This section includes: Eating out, vacations, gifts, entertainment, clothing etc.

Transportation 15% In this section include all expenses related to ANY transportation you take. That could be your own vehicle or public transportation. This includes: Car payments, insurance, gas, public transportation and any parking tolls/fines.

Debt 15% Here is where you have all your fixed debts except for a mortgage and car payments. This includes: Student loans, personal loans, credit cards and lines of credit.

Savings 10% This is where you should exercise the concept of “pay yourself first”. I will cover this concept in future posts. This includes: RRSP’s, personal investments and cash into an emergency account.

Other 5% This is my favorite section. I call this my guilt free money. What you do is take out 5% of your net monthly income, divide it by 4 and that’s what you can spend each week. You can spend this on whatever you want. The only rule is that you must spend it all!!!! At the time of the writing I currently spend $70.00 a week and it’s mostly on treats and eating out. I will mention this, you should only be doing this if all the other sections of you pie chart are within the guideline.

Remember, this is a working guideline. Some months might be off balance or a little out of whack. This is why you review it every month, or every quarter a least. If you find that you are way off of the guidelines, that’s ok, at least you now know. If you are willing to make the changes, this guideline will help show you where those changes may need to be made. Stay tuned for the next budgeting series which will cover tips and ideas for getting back to a properly balanced budget.

Need more help? Get your FREE “How To Manage Monety” Tool kit