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Before anyone can begin to draw up a realistic budget, there a few vital pieces of information required. The first thing you need to know is how much money you make. No, I don’t mean your annual salary or hourly rate of pay; I’m talking about the actual net amount that ends up in your pocket after mandatory deductions. How many of you can give me that figure off the top of your head? Most people can’t. So, sit down and figure out the amount of actual take-home pay you receive.


Once you’ve come up with how much money you actually have to spend, you are a step closer to starting a budget. Another thing you require is a firm understanding of what mandatory living costs you have. These are also known as “fixed” costs. These costs are necessary in order for you to live and may include rent, telephone, food, hydro, natural gas, transportation, etc…. Making a list of these costs is the next budgeting step.  It’s surprising to me that many people have no clue what it costs them every month for food, telephone or other standard living expenses. My advice to them is FIND OUT!!! You can’t tell if you are living beyond your means if you don’t know what you spend and on what.


Ok. You’ve got the information you need now and are ready to begin to create a budget. The first question I have for you is “do your monthly payments exceed your monthly income”?  You’d be surprised how many people answer yes to that question. Clearly, they have managed to ignore their financial situation and avoid the stress of repairing the damage. The problem with this approach is it always catches up with you and must be dealt with at some point.  The only way to get out of this difficulty is spend less or make more.  It’s that simple.


If you do manage to make more money than you spend, you are now ready to begin to think about your goals. What is the point of budgeting if you don’t know what you’re saving for? Ponder what matters to you. Do you want to get out of debt? Buy a new car?  Make house improvements? Take a trip? Next week we can take a look at matching your goals to a realistic plan to achieve them.