Develop a Monthly Budget and Reduce Your Debt to Income Ratio

Posted by under Mortgages

by CanEquity

Spring Clean your Spending Habits

Now that spring is really here, and your tax returns are in, it’s time to cease procrastinating your annual financial review. It is important that every year you make the effort to create, or reassess, your monthly budget as is fitting to your current circumstances.

Your monthly budget needs to take into consideration regular fixed items, such as mortgage payment/rent, bills, insurance, property tax, etc., but also: salary changes, property repairs, annual memberships, dining out averages, clothing and retail purchases, hobbies, travel expenses, etc.

As summer approaches you are most likely trying to plan a family holiday. You are also in your yard more often, and maybe getting ready to start on some fixes that were impossible when your property was covered in snow. Reworking your monthly budget will help you locate where those needed funds are going to come from, and where funds are being wasted or inefficiently used.

The best way to get started on your budget assessment is to print your financial records, those from bank and credit accounts, and colour code your expenditures with highlighters. Consider groupings like: yellow – home costs; red – dining out; blue – vehicle costs; green – sports and leisure; pink – communications; and so forth.

Your number one directive in budgeting should be to pay down and rid yourself of high interest debts. If you are carrying balances on credit cards you are allowing yourself a serious monthly drain. If you are also paying down a car loan at a rate higher than today’s mortgage rates, you may need to consider debt consolidation.

Debt consolidation, also termed mortgage refinance is possible for homeowners who have amassed 15 per cent or greater equity in their property. If you are not yet at that mark, or are currently renting, it is also possible to attain a consolidation loan from various financial institutions. Both products will allow you to pay out your high interest debts and amalgamate them into one, lower interest, monthly payment.

Your second priority is to target unnecessary expenses, or expenses that could be cut down. If you notice that you have been eating out several times per week and skipping out on doing groceries it’s time to implement food shopping into your schedule. Likewise if that theatre membership you purchased has gone unused over several months it may be time to cancel. And if your cell phone bills are skyrocketing you may need to call in and change your plan.

Not only does cutting superfluous items from your budget save you money, it also frees up those funds to allocate toward other products that will actually grow for you rather than evaporate your savings. Consider car pooling or cycling to work this season, and contributing that $25+ per week in saved gas money and parking fees into your RRSP, your Tax Free Savings Account, or your child’s RESP.

Alternatively, you could use all of your summer savings – that $50+ less per month in natural gas, about $30 less per month in electricity and $10+ per day if you start packing lunches and pooling to the office – toward a nice August vacation or a pre-payment on your mortgage.

Producing an accurate monthly budget is easy to do and solely beneficial. Take your laptop out onto the deck and get started tonight.

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