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Live Within Your Means

If you are like many Canadians, you may find that you are spending more than you're saving and steadily going deeper into debt as a result. This is an easy and common pattern to fall into, and one that requires some planning and discipline to reverse.

The first step is creating a budget. As unpleasant as this may sound, creating a budget is nothing more than examining your income and expenditures in order to determine exactly how much money you have coming in and where you're spending that money.

Once you've got a clear understanding of your current budget, your challenge is to find places where you can spend less (or earn more) in order to achieve your financial goals. Here are some steps you can take toward that end:

1. Question Your Needs And Wants

What do you want? What do you really need? Your wants are basically the things you can do without — everything from that high-end tennis racquet to dinner out at a gourmet restaurant. Wants are purchases that, while they may make your life easier or more enjoyable, are not necessary to your well being. Your needs, on the other hand, are not quite so flexible. They are necessary financial obligations such as housing and food costs. Evaluate your current financial situation. Take a look at the big picture. Make two lists – one for needs and one for wants.

As you make the list, ask yourself:

  • Why do I want it?
  • How would things be different if I had it?
  • What other things would change if I had it? (for better or worse)
  • Which things are truly important to me?
  • Does this match my values?

2. Set Guidelines

We all have different budgets based on our needs and wants. But the Building a Budget chart on the next page shows some guidelines on how much should go toward different expenses. You may need to make adjustments for a daily latte fix or visits to family, but remember to subtract amounts from other areas if you do.

3. Track, Trim And Target

Once you start tracking, you may be surprised to find you spend hundreds of dollars a month on eating out or other flexible expenses. It may become obvious that you need to cut back in certain areas.

Some types of expenses are more easily trimmed than others. Some of these are easily trimmed. Cutting back is usually a better place to start than completely cutting out. Be realistic. It will help you to be better prepared for unexpected costs. Once you have gotten into the rhythm of living your life on a budget, you will notice all kinds of spin-off effects. In the short term, you won't feel as much stress when your bills arrive. In the long term, you may find yourself heading for a more secure financial future.

The SMART Way to Trim Expenses
In finding ways to trim flexible expenses, it helps to have a goal to save toward each month. Setting such a goal needs to be SMART:

  • SPECIFIC Smart goals are specific enough to suggest action. Example: Save enough to visit Rome for your wedding anniversary. Not just "save money."
  • MEASURABLE You need to know when you achieved your goal or how close you are. Example: A trip to Italy costs $2,000, and you have $800 saved.
  • ATTAINABLE The steps toward reaching your goal need to be reasonable and possible. Example: I know I can save enough money each week to purchase that trip to Italy.
  • RELEVANT The goal needs to make sense. You don't want to work toward a goal that doesn't fit your need. Example: We would like to stay in four-star hotels in celebration of our anniversary.
  • TIME-RELATED Set a definite target date. Example: I want to go to Italy by next summer