A Balanced Budget

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The thought of completing a budget can feel like a daunting task. When you see how much you spent on lattes and avocados in a month, it can be a bit of an eye-opener. The benefit of having a budget is that it prepares you for costs that can arise when you least expect them.

My nanny had a theory on budgeting – in life, there are really only 5 buckets that our money is used for: retirement, home, transportation, vacations, and beer (beer includes food and day to day expenses, but she used beer in her explanation).

For every dollar that you earn, a percentage of it should go into each bucket. The percentages should never change throughout your working life, just like tithing. The important thing to realize in this exercise is to identify any areas that are being neglected and come up with a method for rectifying the situation. Once the buckets are set up, keep them as they are— you do not want to rob Peter to pay Paul. Don’t skip out on making your RRSP contributions to take a holiday.

Nanny didn’t have any formal education, but by planning a way to structure her spending, she lived a great and financially secure life. She travelled the world, she ran a business, owned many properties and most importantly spoiled her many grandchildren and great grand-children. It worked out well for her and there’s no reason why it can’t for you too!