Budgeting is one of the most important things you can do to prepare yourself for a successful financial future and to ensure you are making room for what is most essential to you. By budgeting for what you want and what you need, you're setting aside a certain amount of money for a particular purpose.
To understand exactly how to budget, you should answer two very important questions:
Your needs are your daily expenses and your short-term spending. Think groceries, gas, car payments, rent or mortage payments – the list goes on. These are the things you need to budget for, because if you don’t – well, you can find yourself in some serious financial trouble.
Then there are your wants. These are often the fun things – the things and experiences you desire and want to budget for. For example, going out for dinner, going to a concert, or taking off for the weekend with some friends or loved ones.
Another factor, which is everyone’s least favourite part – is the emergency fund. Setting aside some money for the things you hope never happen, but sometimes can happen, so it's never a bad idea.
By creating a budget that splits between your needs and wants, you’re giving yourself the opportunity to see all your expenses and evaluate what you actually need, versus what you really want.
The bottom line is that you really need to look at your budget objectively. Be hard on your spending and be disciplined when it comes to truly defining your needs and wants.
The more honest you are with your spending, the harder your budget will work for you. If you start categorizing your needs that are actually wants - you’ll be spending a lot of your budget on “needs” before you know it.
The whole point of creating a budget is to stick it – so you can help reach your financial goals, while also allowing yourself some flexibility.
If you’re looking for a simple budgeting tip, tracking your spending on an Excel Spreadsheet is a great way to keep yourself accountable on a monthly basis.
You can also try TD MySpend, a helpful tool to track spending habits and to ensure your needs and wants are within your tracked budget.
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