A Beginner’s Guide to Debt Relief – How to Create a Budget

For someone who wants to reach financial security, creating a budget is important. A budget is a tool or method that will help you keep track of all your finances. It is also a detailed plan of the income you earned and expenses you incurred over a given period. Whatever your financial situation is at the moment, creating a realistic budget that is aligned with your financial goals is the key to successful planning. Whether you want to pay a debt, build an emergency fund, stop living paycheck to paycheck, or want to be more financially responsible, creating a budget is essential in helping you accomplish such goals.

Benefits of budgeting

Budgeting may take effort, but in the long run, the rewards are worth it. Here are some reasons budgeting might be right for you:

• To take control of your finances
• To achieve peace of mind in money matters
• To be ready to reach financial goals
• To reach financial security

Getting started with your first budget may be challenging and complicated, especially if it’s something you are not used to. Here are three basic steps on how to create a budget for the first time:

1. Determine the “why’s” for creating a budget

If this is your first time creating a budget, knowing your “why” for budgeting is a major step in identifying how to achieve your financial goals. It can also help you stay motivated and manage the risks you need to stay on track and get ahead. Define your goals before you start budgeting as they will greatly impact the choices you make during the process. Here are some “why’s” for creating a budget:

• Getting out of debt
• Finding a way to save money
• Breaking the paycheque-to-paycheque cycle
• Avoiding  spending money that you don’t have
• Staying on track toward long-term financial goals

2. Have a concrete and specific short-term and long-term financial goal

Your budget depends on your goals. Create both short-term and long-term goals to help have a more concrete and specific idea of what your financial goals are. 

What you want to accomplish in six months can be your short-term goal, such as saving for that long-awaited dream vacation. Long-term goals are those that would have a major impact in your life or something you want to be accomplished in a year or so, such as having enough money for a house down-payment. 

To be effective in your goal setting, you need to:

• Be specific – instead of “pay off the mortgage,” your goal should be to “save $5000 for a mortgage.”
• Include deadlines – set a target date for when you want to achieve your goals. When do you want to pay off that mortgage? When will you purchase that new car?

3. Decide how much you want to save

Once you have identified your goals, decide on how much you need to save for each of those goals. If you want to have $150,000 in five years for that dream house, determine how much you need to save monthly. While it can be hard to set aside how much you want to save for bigger goals, having a specific idea can help you achieve your goals.

Budgeting is about discipline and consistency. Make sure that you also understand your current situation and be realistic with your goal setting. 

If you need assistance with setting your financial goals, DebtHelpers.ca provides debt relief solutions that can help you – get in touch today to see how we can help.