Set a budget and stick to it
"Know where your money's going," says Laurie Campbell, CEO of Credit Canada Debt Solutions, a debt-counselling service.
Setting a budget -- or spending plan -- ensures your money is going to optimal areas.
"If you've done the work to create a budget, yet you consistently spend beyond it, then the first step is to find out why you're breaking your budget," says Campbell. "Then you can take steps to fix those problems."
"Typically, budget busters happen because of unplanned expenses, an unrealistic beginning budget or a lack of motivation and commitment to stick to the budget."
Here are Campbell's 10 steps to create a budget that works:
Get pen and paper -- and start recording all of your monthly expenses.
Know exactly how much income you can rely on a monthly basis. Try not to count on any irregular sources of income.
Round up your bills. This will tell you your monthly fixed and variable expenses.
Fixed vs. variable expenses:
Fixed expenses include your mortgage or rent. It's an exact amount every month. Variable expenses may include costs such as car repairs. You're not quite sure what the amount will be. Round up an estimated amount for the year and divide by 12 to get a monthly figure for your budget.
Round up your statements: credit card and other outstanding bills. These monthly payments will also need to be included in your monthly budget.
Do the math. Add up your income and subtract all your monthly expenses. What's the result? Do you have extra money or are you in a deficit?
Once you've done the math, re-tweak your budget. This is a step that needs to be done on a regular basis. If the money coming in pales in comparison to the money going out, where can you cut costs? Go through your variable expenses and see where you can reduce.
Know your needs and wants. If your income's tight, limit your spending to your needs only. What are your priorities? Ensure the money goes to those first.
Time to plan for unexpected/unplanned expenses. Put aside a set amount on a monthly basis to cover or help out with these unexpected costs - and avoid using credit.
How much to put away in savings?
General rule of thumb says 10 per cent of income should ideally go towards savings. That amount scares off a lot of people, says Campbell. She recommends putting away up to 10 per cent for savings. "If you can start something small like $20 a month, then start with something so you're at least putting away some money a month," says Campbell. "So when you refine the budget, and you get better at it, you'll find more money available."
Track expenses. Use online tools and apps to help record your daily expenses and help you stay on track. If you're old school, a notepad and pen will do to help you record all of your daily costs.
Campbell's recommended tools:
Credit Canada's monthly budget tracker has easy-to-follow charts. Carry the guide with you and record everything you spend daily each month.
Mint.com allows the consumer to get a handle on finances. It organizes and categorizes your spending for you. See where every dime goes and make money decisions you feel good about.
PearBudget captures many of the features of Quicken in an online service that doesn't grab your account information. It helps you create a budget and track your spending. It doesn't help you track investments or income growth. You can use the paid online version or try out a free spreadsheet version.
Continue to track and trim where necessary.
» More: Money 101 for kids