6 Importance of a Budget

A budget acts as the base economic blueprint to your financial journey.  A budget fundamentally provides an outlook into the income and expenditures over a specific period of time, usually on a monthly or annual basis.  Having an accurate budget is especially important to track, assess, and re-evaluate your financial status.

There are many benefits to keeping even a simplified budget:

1. Preventing you from Spending Funds you Don’t Have – With the use and availability of credit cards, it’s very easy to spend money that you are not able to pay back in full at the statement due date.  Keeping a budget allows you to review how much cash income you have received that month to keep spending habits within a limit.  For trade apprentices, keeping a budget can stop overspending of funds greater than that actually received from student loans and grants.

2. Reality check – Many people have never created a budget, and are surprised to see their actual spending habits.  Making a budget forces people to review expenses and set realistic spending and savings goals.  The budget can easily show if one is living within their means.  It is sometimes a hard reality check that one’s financial health is not heading in a great direction.  For trade apprentices, generating a budget can help predict the financing required for each level of technical trades training.

3. Assist in reaching long-term and short-term financial goals – Budgeting helps allocate funds towards certain goals and to tracking progress.  Spending your entire paycheck makes it more difficult to save for long-term items such as purchasing a vehicle or putting a down payment on a principal residence.  Having a budget can assist trade apprentices in projecting the cash inflows and outflows required as they complete their certification towards qualification.

4. Automate the savings process – With a budget, one can designate a certain amount or percentage of income directly to savings or reducing debt.  Separating a specific savings amount away from disposable income automatically allows an individual to begin to build regular savings or investment contributions.  For trade apprentices, the budget can assist in forecasting when payments are due and how long it may take to pay back any student loans.

5. Be in a healthier position when emergencies arise – Unanticipated events may arise such as a car breakdown or required home repair.  One can begin building an emergency fund into their budget, by setting aside funds from each paycheck.  Trade apprentices may find themselves changing employer sponsors or being laid off after a project is completed, so there is a gap in the expected earnings.  Having an available emergency fund to make necessary unexpected financial payments will put you into a less stressful financial situation.

6. Review Financial Habits to Make Better Changes – Tracking expenses over a few months or year on year comparisons can show financial trends.  Enhanced financial decisions and setting larger financial goals can be made from budget data.  Trade apprentices can and should begin to increase financial goals as their income expands with increased experience in their trade.

Overall, having a budget provides a key starting point towards the journey towards financial freedom.  The budget acts as a base in setting and attaining realistic financial goals, living within your means, planning for the future, and saving for the unexpected.

The Government of Canada – Financial Consumer Agency of Canada outlines increased information in regards to ‘Making a Budget’.

Technology Budget Tool Planners

Of course, there’s an App for that!  A budget tool planner can come in many forms.  Some are even compatible with an array of technology platforms.  At its fundamental core, all budgeting tool planners perform similar calculations to track the estimated cash inflows and outflows over a specific time period usually a month.  Using a mobile phone application or worksheet template to create a budget can provide a good financial overview very quickly.

Financial Consumer Agency of Canada – Government of Canada

The Financial Consumer Agency of Canada has an online budget planner, in which data can be inputted directly and results can be saved, exported, or printed to portable document format (pdf).  Using the Government of Canada’s resource can provide you with guidelines with how your budget compares to the average Canadian.

Buddy

Buddy is another application that can help you set-up a budget and keeps track of expenses.  An overview of your income, expenses, and savings can also be shared with other people such as family members or roommates.  There are both free and paid versions of this application.

Banking Apps

Many large Canadian financial institutions will offer their own application for being a customer with them.  These banking apps can show account balances, transactions, and bill payments.  TD Bank offers a more detailed budget tool application called TD MySpend, which will track spending habits, set financial wish lists, and categorize expenses.

Other Canadian financial institutions such as Canadian Imperial Bank of Commerce (CIBC) offer CIBC CreditSmart and Bank of Montreal (BMO)

There are an abundant number of technology applications or spreadsheet versions that can assist in tracking expenses and producing a reasonable budget.  It’s not as important on which technology budget planning tool for you to use.  It’s much more vital to keep an accurate budget, review the data results, and allow the budget to shape better financial decisions and habits.

A budget template (Excel) has been provided that includes common income and expense items for trade workers.

Chapter 02_Budget Template