In today’s world, spending temptation is everywhere. Overconsumption is becoming increasingly common, while wealth saving is left on the back burner. In reality, saving all of our money is not the goal, but with a little prioritization in budgeting, you can turn your day-to-day wealth into future financial success.
While budgeting may seem like a daunting task, it is not as complicated or overwhelming as it appears and the benefits can be transformative. The key to creating a budget is about understanding what you find value in and pouring your wealth into productive financial outlets. Get into a steady rhythm of consistency, and create a customized budget by documenting, tracking and prioritizing your spending categories.
Starting With The Basics
No matter what kind of financial status you hold, budgeting for the essentials remains a universal priority. Integrating basic budgeting tactics promotes financial responsibility through monitoring and tracking expenses and allocating wealth to beneficial sources.
If you are looking to implement budgeting plans into your finances, the 50/30/20 rule or “Zero-Based Budget” are commonly used to prioritize growth, needs and wants. If you do implement these strategies, it is important that you monitor your success and implement frequent adjustments.
If you are left with extra funds after filling your gas tank, paying your rent and buying your groceries, your next priority should be repaying credit debts and loans. Like the essentials, debts require budgeting and setting up a designated portion of money towards your amount-owing. By structuring your debt repayment plan, you can adjust your cash flow to make your payments a lot more manageable, making small steps for big changes.
Long-Term Budgeting Tactics
Using a basic budgeting technique allows you to monitor your short-term expenses and income. With this understanding, you can grasp how much is available to be invested into saving for the future.
Retirement is an important long-term goal. Relying on alternate sources of income such as government benefits like Old Age Security (OAS), Canadian Pension Plan (CPP) and Guaranteed Income Supplement (GIS) is a given for most Canadians. However, what sets a financially successful retirement apart is the use of budgeting for saving in designated accounts like a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Account (RRSP).
Setting aside money for retirement starts with defining your goals, when you plan to retire and how much you would like to have for retirement. Using the Canadian Retirement Income Calculator will give you a sense of how much money you will need to retire and how long it will take to get you there.
Budgeting monthly income to contribute to savings accounts will allow your wealth to not only be saved but compounded. For example, TFSAs and RRSPs are the biggest tax havens for investment gains as they sit tax deferred.
Budgeting For Investment
If you are thinking about ways you can diversify your wealth through budgeting, consider investing. Mark Henry of Alloy Wealth Management states that you should invest “somewhere around 15%-25% of your post-tax income.” If this sounds out of reach, consider setting aside a manageable designated amount to invest each month.
Investing in mutual funds, exchange-traded funds, real estate, stocks or bonds can use the power of interest to increase your investment and reduce risk through portfolio diversification.
Donating
If you are looking for a meaningful budgeting tactic, allocate funds to charitable donations. Setting aside a portion of your income for charitable contributions permits you to lower your taxable income and increase your tax refund which you can invest and budget further. With an official donation receipt, all Canadians can claim a charitable donation tax credit, for 75% of their net income on their tax return.
When donating, it is important that you look for organizations with a transparent track record and commitment to their mission. To ensure that you can also benefit from your contribution, confirm that the organization is recognized by the CRA.
When it comes to budgeting, individualized approaches are essential for success. Everyone’s financial status and journey are different, and without understanding your own financial goals and plans, it may seem difficult to see results. It is important to know that frequent adjustments to your budget are normal and that with regular monitoring, you can shift your priorities to better fit your lifestyle.
To begin or amplify your budgeting strategies, speak to an advisor at RaeLipskie and unravel the path to your future finances through your present-day wealth, contact us today!
