Step 7: Looking Ahead
Any good plan must involve monitoring, periodic review, and occasional re-evaluation. A spending plan is no different. Circumstances may change, mistakes can be made and your needs will vary at different times in your life.
When you first build your spending plan, you are going to need more time to monitor it to ensure that it is based on realistic information. It will take a month to start falling into place.
During the second month, you will work out some of the kinks and the routine will start to become part of your daily thinking. It should now start to fall into place more easily.
By the third month, your spending plan should be up and running. Congratulations, you have taken control of your finances! However, if it isn’t working yet, ask yourself a few questions:
- Did I calculate my income correctly?
- Are my expense figures accurate?
- Is everyone's income and expenses accounted for?
- Is my plan based on actual numbers or what I hope I can earn or spend?
- Did I give it a fair chance?
- Do I need professional advice?
Looking ahead for year two
For the first year, you will need to review your plan monthly. If it is working, during the second year you can review it every 3 – 4 months. After that, you will need to review it annually. However, if there are any major changes in your financial life, you will need to re-evaluate your plan and possibly change it. Some major changes might include increased transportation or housing costs or a loss or increase of income. Similarly, large purchases or expenses may mean that you will need to cut back somewhere else so that everything fits again.
As you become more in the habit of managing your money effectively, your plan will feel natural and develop into a part of how you do things in your household. Some of the steps may blend together at times or you may add a step or two to make it easier for yourself.
Life happens; give yourself permission to make changes that benefit you and your family. Having a plan with a solid foundation will allow you to come out ahead, rather than in debt.
A Note About Credit
Credit can afford us opportunities that may not be available to us otherwise. Most consumers who purchase their first home need a mortgage. If you would like to book a vacation on-line, you usually need a credit card. However, in order to avoid burdensome and expensive debt, you need to plan how you will use credit responsibly within what your budget allows. Some things to keep in mind to protect your credit rating as well as your financial plan:
- Only apply for credit that you need. One, maybe two credit cards, with very reasonable limits based on your income, are all you should need. Pay them off in full every month.
- Keep all credit card balances well below the limits on all of your cards at all times.
- Reduce your monthly debt payments (excluding mortgage payments) to no more than 15% – 20% of your take–home pay. This will allow you to manage unforeseen financial challenges effectively.
- Keep credit limits reasonable – if you used or charged them all to the limit, you should be able to pay the full balance off within a year and leave it paid off.
- Pay more than the minimum payment due each month on a credit card and work on bringing the balance owing down. Limit your use of the card until it is paid in full.
The Credit Counselling Society has more helpful information about using credit wisely and paying off debt. If you need help putting together your budget, improving your credit situation, or dealing with debts, call us at 1-888-527-8999. We'd also be happy to mail you the printed version of this 7 Steps budgeting workbook if you live in Canada. Just email us your request and include a mailing address.
You've reached the end of our seven steps to better budgeting guide. If you need to go back to review any details you may navigate backwards to Step 6: Managing Seasonal Expenses. If you'd like additional help feel free to reach out and give us a call.