Avoiding budget pitfalls

The main culprits for the failure of the budget is unrealistic
objectives, estimates and lack of discipline.

Emmanuelle Bertrand | Journalist

A budget is the best way to stay on top of your personal finances. Unfortunately, most households have little interest in having one. And even when they do, it often gets buried at the bottom of a drawer. Why is that?

The main culprits are unrealistic goals, poor estimates and lack of discipline.

Carole Laberge, budget advisor at the North Montreal Association coopérative d'économie familiale (ACEF) and Angela Iermieri, financial planner for Desjardins Group, suggest four ways to avoid budget pitfalls.
1. Simplify: Don't put all your eggs in one basket
To help you stay on track each month, make a list of your frequent and recurring expenses and separate them into three main categories. There's a number of online budgeting tools out there to help you do this, including the My budget tool for Desjardins members. 

Expenses can roughly be broken down as follows:
      • 50% of income for fixed expenses
        • Rent
        • Hydro
        • Telecommunications
        • Driver's license, etc.
      • 30% of income for variable expenses
        • Groceries
        • Clothing
        • Entertainment
        • Leisure activities
      • 10% of income for savings 
      • 10% of income for paying off debt

2. Automate: Free your mind from worrying about fixed expenses 
    • Choose equal billing (heating) and take advantage of bundles/volume discounts
    • Set up automated payments whenever possible
    • Homeowners: include your tax payment in your mortgage payment
    • Clean up your list of fixed expenses; some of them may no longer be needed

3. Be honest: Don't underestimate your variable expenses
    • Be truthful in your calculations (don't rely on wishful thinking)
    • Keep your receipts and track your spending
    • Set up alerts to let you know when you've reached your monthly limit 

4. Save automatically, regardless of your income
    • Set up an emergency fund. While possibly the most important type of savings, it's also the most neglected. Without a cushion, any attempt to stick to a budget will invariably fail! 
    • Choose automatic transfers to your savings account (even if it's just $5 per pay).

Drawing up a budget can be tricky. Get some guidance from a personal finance professional, look for budgeting seminars in your community or contact the ACEF in your area to sign up for comprehensive budgeting classes.

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