Times Advocate, 1995-12-28, Page 9Times -Advocate, December 28, 1995
Page 9
PAYING ATTENTION TO YOUR MONEY NOW WILL PAY OFF IN THE FUTURE
Budgeting doesn't have to be difficult
On Saturday afternoon, Dave goes to the automated banking machine
(ABM) and withdraws $100 from his account. On Monday morning, he's
back, wondering how he managed to spend all that cash so quickly.
Dave isn't really sure where his hard-earned money goes. He just knows
that he never seems to have enough.
And yet, Dave probably wouldn't be interested in setting up a budget.
After all, aren't budgets for people who are in serious financial trouble?
Most of us are a lot like Dave. We think of budgeting as a painful
process, something to resort to in an emergency. Who wants to pinch
pennies and spend hours keeping records every week? That would take all
the fun out of life.
Budgeting has a definite public relations pro3lem! In reality, the person
who doesn't have a budget is the one who loses out on the fun things in
life.
And budgeting isn't necessarily all that complex. It's simply a means of
ptanmttg. trs-asystem to help you establish your priorities and recognize
what your choices really are.
Budgeting puts you in control of your finances. It helps you to know
where your money goes, and puts you in a position to change your
expenditure patterns -if you so desire.
The following chart shows how much the average prairie household (at
different income levels) spent in various categories in 1992.
HOUSEHOLD INCOMES
20-29999 30-39999 40-49999
Food
4,179 4,934 5,823
Shelter
5,373 6,048 7,148
Home operations
1,495 1,718
Furniture & equipment
840 1,150
Clothing
1,424 1,798
Transportation
4,154 5,191
Health care
812 1,074
Personal care
648 762
Recreation
1,260 2,034
Reading
182
Education
180
(in dollars)
50-59999 60-79999 80000+
6,405 7,417 9,033
7,536 9,255 10,449
2,069 2,337 2,722 4,129
1,414 1,443 1,864 2,633
2,217 2,690 3,593 4,992
6,277 6,115 7,573 10,133
1,137 1,386 1,181 1,598
891 981 1,172 1,479
2,599 3,168 4,307 5,953
216 239
236 376
Tobacco & alcohol
1,196 1,437
Miscellaneous
906 1,069
Personal taxes
2,703 5,355
Security '
1,135
•
260 356 476
711 668 1,067
1,669 1,391 1,831 1,585
1,560 1,532 2,051 2,414
7,589 10,652 15,629 27,028
1.667 2,250 3,259 3,959 5,550
Gifts & donations
1,528 1,753 1,909 2,137 2,202 3,249
TOTAL EXPENDITURES
• 28,015 36,442 45,167 52,003 65,780 91,768
* Security includes life insurance, and contributions to UI, CPP and
other pension plans.
Family Expenditure in Canada, 1992 Statistics Canada
(Catalogue 62-555)
You may find some of the data surprising. Since every family is
different, with individual spending patterns as unique as fingerprints, your
average spending levels won't be the same as others'. There's only one
hard and fast rule: avoid spending more than you earn.
Your budgeting goal is to control your spending so you have the money
to buy what you most value, now and in the future. For you, the current
goal might be buying a new car or furniture. For others, it could be an
expensive wardrobe, regular vacations in Hawaii, or having enough
grocery money to last the month. For all of us, having enough money to
live comfortably in our later years is certainly an important consideration.
You don't use a hammer to put in a thumb tack. The same is true for
budgeting -you choose the tool that will work for you. In this article, we
describe the three major types of personal budgets: basic, deluxe .Ind
custom-designed.
Whichever version you choose, these rules will apply:
1.Be aware. Know where you are spending your money. Recognize that
major spending in one area likely means giving up something in another.
Most of us don't realize how quickly the "little" expenses can add up.
For example:
Annual Cost
1 cup of coffee per day
1 magazine per week
3 candy bars per week
1 case of beer per week
1 video rental per week
2 fast food meals per week
$ 295
210
110
725
155
520
2,015
1 package of cigarettes per day 2,000
$4,015
Total Cost
What would you do with an additional $2,000 a year? ($4,000 a year if
you smoke!) Continue smoking? You have the power to make choices and
stay in control.
Since you're using after-tax dollars to cover these expenses, cutting back
on some of them could have the same et tect as getting a raise of $3,000 or
more a year!
Try analyzing your spending and sa% mg, for one to three months. Go
through your cheque book and credit card statements, and separate your
expenses into major categories: house. food, car, clothes, entertainment
and so on. Cash expenditures will be harder to track, but try estimating
your cash sPending in three or more categories; for example, lunches,
cigarettes, entertainment and incidental:.
You don't need exact figures. The idea is simply to get a clear picture of
your spending habits.
2.Pay yourself first. Many people try to save by paying all their bills and
saving whatever is left. Unfortunately, this doesn't work. Most of us can't
resist spending until there is little or nothing left. So put your savings
aside, right off the top.
If you're worried about mounting debts, paying yourself first means
reducing your total debt load each month. Once you have your credit
problems under control, you can start a savings plan.
3.Separate your savings. If your savings are kept in a separate account,
you'll have to think carefully before deciding to dip into these funds. Make
it difficult to spend what you have worked so hard to save.
4.Start slowly. The best budget is one you can stick to. If you haven't
been saving regularly -or at all -you'll need time to adjust to the idea and
to the impact it has on your spending. Start with a small amount each
month: perhaps just $1 a day, which adds up to $30 a month and $360 a
year.
Success breeds success. Once you achieve a modest savings goal, you
will be inspired to do even better. If your goal is too ambitious, you may
fail and then be tempted to give up on the whole idea.
5.Save for periodic expenses. Anticipate and save for annual or irregular
expenditures, such as property taxes, insurance premiums and Christmas
gifts. Set aside a certain amount each month.
6.Set up an emergency fund. Every household needs a fund for
unexpected bills. The amount you keep in your emergency fund will
depend on your particular circumstances, but it should probably be enough
to keep you going for two to six months.
7.Reward yourself. If you meet or beat your savings goal, give yourself
a reward. If you manage to achieve your goal for an entire year, buy that
new sports equipment or set of dishes you've been wanting. If you've been
really good at putting aside a little extra each month, maybe you can
afford a luxurious weekend out of town or season's tickets for the theatre.
Give yourself an incentive to save. and make budgeting fun.
BASIC MODEL
The simplest approach to budgeting involves saving a predetermined
amount each month and spending the rest. ATB can'help by setting up an
automatic transfer between bank accounts.
Sally has $250 automatically transferred from her chequing to her
savings account, at the beginning of each month. Sally's rule is not to use
those savings for day-to-day expenses. and to get by on whatever remains
in her chequing account.
This model assumes you will spend whatever money is readily available
to you. Money invested separately, in a savings account or term deposit, is
out of sight and less likely to be spent. This type of budgeting will help
you to spend only the amount you plan to spend.
The basic budgeting model leaves you free to spend non -savings funds
in any way you choose. There is no accounting or record keeping. The
focus is on "how much" and not "where."
If the freedom of this plan appeals to you, remember that its success lies
in your ability to put sufficient savings aside, regularly. If you are unable
to achieve your savings goals with a basic budget, you may have to look at
another method.
Anyone who is setting up a basic budget must first answer this question:
"How much should I be saving?" A general rule of thumb is 10% of your
income. For many, this objective is out of the question as they struggle
each month just to pay their bills. For others, this goal is far too low (for
example, if you're planning an early retirement).
As you decide how much you need or want to save, take these factors
into consideration:
o the current status of your emergency fund
o your mortgage pre -payment options
o how much you plan to contribute to your RSP
o plans for major expenditures (for example, buying a new car or
home)
o your retirement goals, including when you will be retiring
o anticipated education costs for your dependants
o other personal goals.
DELUXE MODEL
Whenever the subject of budgets comes up, most people think of the
deluxe budgeting model. This approach to budgeting involves setting
predetermined upper limits on basic categories of spending, and then
measuring your actual spending amounts against the budgeted amounts.
Obviously, the deluxe model requires a fair amount of effort. But it also
gives you much greater control over your spending habits.
If you choose the deluxe route, keep these strategies in mind:
I. As in the basic model, the first expenditure category is your monthly
savings goal. This amount should be invested separately. Remember, pay
yourself first!
2. Keep categories general, and customize them to suit your lifestyle.
For example, there is no need to keep track of separate car expenses such
as gas, repairs, licensing and insurance, unless you need this information
for income taxes or you are interested in knowing what your car is costing
you in these different areas. Don't make your record keeping more
complex than it needs to be.
3. Record actual spending on a regular basis -either weekly (ideally at
a set time) or monthly, when you review your credit card statement and
reconcile your bank account statement. (If these two activities are not
currently a part of your month-end routine, they should be!)
4. Review results regularly. If you're not making progress, find out why.
Otherwise, all that budgeting and record keeping is pointless.
To get you sCarted, here is a sample format for a deluxe budget.
Customize it to meet your personal needs.
SAVINGS Gas, repairs and license Bus and taxi fares
Emergency fund DISCRETIONARY
RSP contribution
Mortgage pre -payment
Other
HOUSING
Mortgage payments
Property taxes
Insurance
Utilities, telephone, cable TV
Repairs
PERSONAL
Groceries, prescriptions and personal care
Clothing
Dry cleaning
TRANSPORTATION
Car payments
Insurance
Entertainment and eating out
Gifts, donations and Christmas costs
Cigarettes and alcohol
Other
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Everyone runs into a storm now and then.
But amidst the storm, it's good to know we can help you weather it out
LARRY
JOHNS
235-3743
NORM
TAIT
235-1359
BUTCH
HOFFMAN
262-2537
BRUCE
RUSSELL
238-8684
London
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WHEN IT COMES TO RRSPs,
HAVE SOMETHING r
NO ONE ELSE HAS. • r
US.o
makes one RRSP different from another? At Scotiabank; o
we think it's people. Our people. o
No matter what kind of plan you're looking for, we'll help you
get the most out of your retirement savings. And the way we do o
o
this is simple. We spend time with you. o
It won't matter if you're new to RRSPs or a seasoned investor,
because we're ready to sit down and work out a plan with you.
Because at Scotiabank we know it's not Just RRSPs you're
Interested In. It's your future.
280 Main St. Exeter, Ont. NOM 1S6 �,
Scotiabank5 r
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• LIFE INSURANCE
• DISABILITY INSURANCE
• R.R.I.F., ANNUITIES
• PENSIONS
• GROUP INSURANCE
George Godbolt
('LE . UFP
496 Main Street
Exeter ON
235-2740
GEORGE GODBOLT CLU, CFP
496 Main St. Exeter • 235-2740
"l_.('t us Help you with
your fiIl(11lCial needs"
• Financial Planning
• Annuities and RRIFs
• RRSPs
• GICs and Savings Plan
• Disability Insurance
• Investment Funds
• . Life Insurance
Licensed with Mutual Life of Canada/Mutual
Investco Inc., two of The Mutual Group
• Group Life and Health
• Group RRSPs and Pension
�fe is
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The Mutual Group
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