TAKING CHARGE OF YOUR FINANCES

By Roberta Cox, Home Economist

Do you wonder where your money has gone? Do you get a cheque at the beginning of the month, or every two weeks and it seems to disappear? Maybe you need a spending plan to see where your money is going. A spending plan lets you be in control of your money rather than your money being in control of you.

A spending plan is a guide which gets revised periodically to meet your expenses. It is your plan of how you will spend your money, with short and long term goals. An example of a short term financial goal is to have enough money to pay for the car license in three months time. A long term goal might be to take the family to Disneyland in 3 years. A spending plan has several advantages. It helps you see where you spend your money and how much you actually spend. It helps you see where you can save money for those once a year expenses and helps you build an emergency fund.

To be successful at making a spending plan work for you there are several steps you need to follow.

Step 1 - Income

Start by making a list of the income you receive. Use the amount that you actually get, your 'take home' pay. Remember to include in your list the child tax credit and any other income, regardless of the amount.. I make two lists - one for monthly income ( pay cheque) and one for income that I get once a year (income tax refund). Yearly income can be saved to cover a big expense or it can be divided by 12 and a smaller portion used each month for expenses.

Step 2 - Expenses

Next list your expenses. Expenses fall into several general categories: Housing, Food, Transportation, Utilities, Medical, Education, Clothing, Recreation and Personal, Other or Miscellaneous Expenses, and Savings. Each category will have several entries for expenses.

I find it easier if I make a list of the expenses that occur monthly and the ones that occur yearly. Once I have my yearly list complete I can total the amount for the yearly expenses and divide it up so that a portion of these expenses are covered each month. For example, if the house taxes are $1200.00 for the year, each month would require saving $100.00 for taxes. This amount is entered in the savings column and the actual money remains in the bank account.

Examples of Expenses that Occur Yearly

January Health insurance	February RRSP Anniversary	March House insurance Birthday	April
May Paint house New steps	June Municipal taxes	July Vacation	August Birthdays (2) Driver's license
September Car license Package policy Tuition fees	October Birthday Hockey fees	November Birthday Anniversary	December Christmas

Make columns on a sheet of paper and list the expense categories across the top. These categories are general guidelines. Create categories that suit your situation.

Housing expenses include the rent or mortgage which is a monthly expense and repairs, insurance and taxes which are expenses that may only occur yearly.

Utilities are power, gas, propane or fuel oil, telephone, cable tv, water, and sewer. For most people these will be monthly expenses. If some bills cover more than one month remember to allow for this expense each month.

Food includes food items purchased at the grocery store and don't forget lunch money. Some people put the meals they eat while dining out in this category, while others choose to put them in the recreation section. If you buy non food items at the grocery store you should separate them out from your grocery bill. For example, diapers are a clothing item and softener salt is a housing item. Many other expenses such as cleaning supplies, and soap, are household ones.

Transportation includes vehicle loan payments, bus fare, gasoline, tires, repairs and maintenance, insurance, parking, licenses and registration fees.

Medical includes prescriptions, over the counter drugs, dental and optical expenses and additional medical insurance.

Education includes books, tuition fees, supplies such as paper and pens. Some people put magazine subscriptions and newspapers in this section.

Clothing includes everything that the whole family wears, including shoes, coats, boots, plus dry cleaning and repair bills.

Recreation and Personal includes dining out, haircuts, treats, movies, recreation fees and equipment, vacation, and personal allowances.

Other or miscellaneous expenses which might includes life insurance, day care, bank charges, pet bills and food, donations, gifts, and garden expenses. If you spend a significant amount of money on any of these items each month make it a separate column.

There is one last column to add and that is savings. This is where you save money for those once a year expenses, or those long term goals. Think of the money in the savings column as money that you cannot spend, except for the designated items. Savings is actually an expense that you pay yourself. Pay it at the beginning of the month. Some people keep their savings in a separate account so that this money does not show up in the checking account where it is easy to spend it.

Credit card bills need to be broken out with expenses going to the various categories. The interest paid on purchases is put the miscellaneous category. That way it is possible to see how much it is costing to use credit each month.

Step 3 - What is Spent

Start keeping track of everything you buy. Save all your receipts and write on them what you bought if it is not clearly marked. Don't forget to keep track of the cash that is actually spent. Coffee, cigarettes, and odd purchases can quickly add up to a lot of money. Next using your receipts write in the amounts you spend in each column.

At the end of the month total each column to give you the amount you spent monthly. Now you have an idea of where the money is going.

Step 4 - Working it Out

You are now ready to do next month's spending plan. For each category, write in the amount of your income that you think you will spend. For example, under housing $550.00, Food $300.00, etc. Keep track of your expenses again for this month. Check at the middle of the month to see if you are spending more in one category than you have allocated. At the end of the month total each column and compare it to the amount you thought you would spend.

Step 5 - Adjustments

Make adjustments as necessary. Plan how much you will spend in each category for the next month and again keep track of what you actually spend. Remember that you have to keep putting money into that savings column to cover your yearly expenses, and long or short term goals. If you are short money one month, you can't take it from the savings column, unless you know how you are going to pay it back.

Step 6 - Expenses Are Greater than Income

If you find that your expenses are greater than income then you will need to either find another source of income or cut back on your expenses. To cut back on expenses look at where you are spending your money, and see if there are things you can do differently. Maybe you discover that every time you go to the movies it costs you $30.00 by the time you pay for admission and popcorn and drinks. You may decide that you could save money by not buying popcorn and drinks but having them after you get home. Maybe you will decide to wait until the movie comes out on video, or appears in the second run theatres. If you go to the movies twice a month you could save up to $50.00. For more tips on saving money explore the other sections of this website.

Step 7 - Next Steps

After you have made adjustments and tracked your expenses for a few months you will have a good idea of the amount you can spend in each category. Every few months review your spending plan and make adjustments. This is necessary because costs and/or income may change. Here is an example. You grow a garden each year which reduces the amount you spend on food in the summer and early fall months. However in the spring months you will have to allow for increased expenses for seeds and garden supplies.

Once you have used a spending plan for a few months it becomes easier and takes less time. Planning what you spend isn't necessarily fun but it gives you satisfaction to know where your money is going. This can reduce stress because money has been saved for yearly and unexpected expenses. Remember spending plans are not "carved in stone" but are to be flexible and revised as the need occurs.