Why you should make a budget
By Jane Rooney, Canada’s Financial Literacy Leader
November 1, 2016
As Canada’s Financial Literacy Leader, people often ask me what they can do to improve their financial situation. I encourage everyone to make a budget.
A budget is a tool with huge benefits. It helps you understand where your money is coming from and where it’s going. It helps you make financial decisions. It allows you to change your spending habits. It’s a tool that can help you be prepared when unexpected, and unwelcome, financial situations occur.
And a budget is not like a New Year’s resolution. People actually stick to them! Research tells us that when people DO have a budget, 93% stay within it nearly all of the time. This is quite a remarkable rate, and it cuts across income levels, education and age.
Need more convincing?
We define financial literacy as having the knowledge, skills and confidence to make the financial decisions that are right for you. A budget delivers on all three fronts.
- Gain knowledge
Budgets tell you how much money is coming in and how much money is going out.
And when you balance your budget, you acquire even more knowledge. Self-knowledge, as you identify and distinguish between needs and wants, as you determine what is really important to you. It helps you prioritize.
- Develop new skills
When you apply your knowledge, you develop skills. Perhaps it’s something as simple as realizing that by bringing coffee to work in a travel mug or saving up instead of buying on credit, you take small steps toward greater financial well-being.
- Boost your confidence
Lastly, as you apply your knowledge and develop skills, you will find that your confidence grows. A budget is like a GPS. It shows you the quickest way to get to your financial goals, it gives you constant feedback on your progress and it tells you what to do to get back on track. This means less stress and more control.
How to get started?
The Financial Consumer Agency of Canada has a budget calculator that can help you keep track of where your money is coming from and where it is going. There are also budget tools for every life stage, whether you are a student, thinking about buying a new home or getting ready for retirement. And our Canadian Financial Literacy Database is a one-stop source where you will find events and resources to help you manage your money.
Once you have your budget, make sure you keep it up to date. The budget that you have as a twenty-something is not the same budget you will need when you start a family, plan to buy a home, or think about retirement.
So just like you change the batteries in your smoke alarm, or switch out the tires on your car with the change of seasons, make revisiting your budget a regular event.
Remember that a budget is not a magic bullet. It can’t protect you from all of life’s financial ups and downs. But it’s a great tool to help you manage them.
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