The budget preparation process should begin at least one month before ringing in the new year.
I’ve always been passionate about budgeting and treat it like a job to keep myself accountable.
For our family, Mrs. CBB and I set aside a couple of hours at the beginning of December to start our budget preparation process.
Although we all use various means to budget, the undertaking is quite similar and one I recommend for everyone.
Today, I want to review our budgeting preparation process to ring in the new year.
Setting Financial Goals
I know discussing money goals seems daunting for anyone who is not a budget nerd, as I consider myself.
How have finance goals helped us?
Better yet, what would not have been accomplished without setting financial goals?
- We would still have a mortgage payment.
- I wouldn’t have been able to pay cash for my truck.
- Our emergency savings account would be lacking sufficient funds.
- We would have an open investment room wasting time waiting for cash.
- Stress-free debt-freedom
If becoming debt-free and building your retirement savings are goals, don’t let them become just a dream.
Dreaming about a goal requires no action.
Accomplishing a goal is action-based.
Please list well-thought-out financial goals and visit them monthly to ensure you’re meeting or exceeding them.
I will warn you that if you overstep your goals, you may become disappointed and motivated to quit.
Long-term goals are great, but short-term baby steps will help get you to the rainbow.
Related: How to create a realistic budget
Review Budgeting Process For The Current Year
The great thing about using a budget is that you can review your financial health for the year.
If you’re beginning to budget, don’t fret because the first year of budgeting is always a learning experience.
Finishing off a year of budgeting allows the user to tally up how much money was spent in each budget category.
The excel budget spreadsheet I designed automatically does this for me, but many other budgeting options offer the same.
Using a paper-and-pencil budget approach, you’ll have to add the figures for the year manually.
Remember that numbers can change during the budget preparation process for the new year.
You may be notified that your telecommunications bill will increase at the last minute.
Often if you look at the fine print on your recent bills, it should disclose upcoming increases.
Always read your bills, even the boring fine print, because as dull as it is to read, it can increase your expenses.
For example, our Rogers bill might state that in January 2023, your mobile phone will increase by $5.
As long as it’s documented, it doesn’t matter if you miss it because it’s there.
Although five dollars doesn’t seem like much when every dollar is allocated during budgeting preparation, there must be somewhere to pull the money.
Finding Money To Fund Unexpected Budget Increases
An emergency savings account will most likely take the brunt of the hit because that’s where the savings are being fed.
For this reason, we have multiple bank accounts, so we know how much savings we have to work with when and if needed.
Another area to review if you need to funnel cash due to unexpected increases is investment savings.
I’m not saying to withdraw funds from your investments but rather reduce what you invest.
For example, if you invest $500 a month into a tax-free savings account, you can call your financial advisor to reduce the amount to $450 to free up cash.
Funnel the extra money into your monthly budget to balance the unexpected utility increase.
If you earn extra money throughout the year, you can top-up your TFSA by lump sum.
Choosing A Budget That’s Right For You
There are free online budgets and budgets you must pay a fee to use.
Not everyone wants their personal financial information stored on a mobile app, but there are alternatives.
For example, we have used an excel spreadsheet since 2012 and updated it yearly.
You can download the same budget from our Free Downloads Page along with a printable basic budget.
Check with your financial institution, as they may offer a free mobile budget for you, or Mint.ca provides a free mobile budget.
You can read more about various types of budgets in my recent post.
Locate Your Debt Information
Now is an excellent time to pull out all your debt documentation and have it readily available for budget preparation.
When creating your budget, knowing how much debt you owe and your net income allows you to create a debt-repayment plan.
Of course, there are debts that you can’t fiddle with, for example, rent/mortgage, which is called fixed expenses.
Credit card debt and other loans often come with a minimum monthly payment.
As the account holder, you can choose to pay the minimum or pay down the principal.
For example, a popular debt repayment plan is the Snowball debt repayment. The
Not having all relevant debt documentation in front of you will challenge repayment.
You must document everyone you owe a month, whether it’s fixed or variable expenses.
Doing so will increase the success of the budget preparation process.
Prepare A Receipts Envelope
I’ve had readers tell me that asking for receipts is embarrassing, time-consuming, and not worth their while.
Although I respect everyone’s views about budgeting asking for receipts is the cherry on top.
Knowing where our money was spent often boils down to having available receipts.
Unless every dollar you spend is on a credit card, it’s not easy to track breadcrumbs on the pavement.
Not only that, but not all monthly expenses are paid via a credit card statement.
Often you’ll find a credit card statement includes expenses part-way or ends a month into a new month.
Never rely on remembering where you spend money because nine times out of ten, you’ll forget something.
Ask me how I know.
If there are certain places you don’t feel comfortable asking for a receipt, keep a journal in your vehicle or purse to write it down.
For example, you spend $10 at the convenience store on lottery tickets. Usually, you won’t get a receipt unless you ask for one.
Jot down the expense the second you get into your car or arrive home, so you don’t forget.
My free excel budget spreadsheet allows us to document all receipts as they come into our home.
The bottom line is that receipts are golden.
Document Net Income
Since I get paid by salary, I already know how much money I’ll net each month.
Whether I work overtime or not, it won’t make a difference to that number.
At the end of the year, I don’t get any bonus or employer gift, which further smoothes our budgeting preparation.
The same rings true for Mrs. CBB’s net income, where we know how much she will net.
We don’t know how much money I will earn from my blogging business or unexpected income during the year.
Believe it or not, I am still employed with my first employer from when I moved to Canada.
They’ve kept me on the payroll if they need me to work for them due to illness.
For all of the above reasons, we print a net income tracker for each of us and keep it in our budget binder.
The importance of the net income tracker is to help guide us in yearly budget preparation.
Can we afford the 2023 Tax-Free Savings Contribution Increase?
For example, documenting how much money we each net helps build our monthly budget plus allows us to invest our money to maximize investments.
In 2023 the Tax-Free Savings Account (TFSA) amount will increase from $6000 to $6500.
We both have a TFSA, so we need to know whether we can afford the increase.
Currently, we pay $500 monthly to our financial advisor to invest in our TFSA, which equals $6000 yearly.
With the $500 TFSA increase to $6500, that amount will increase by $41.66 monthly.
The total amount we need to have accounted for is an additional $41.66 each, or $1000 annually.
We mustn’t go over the annual contribution limit or risk being taxed by the CRA.
A good financial advisor will let you know how much you can invest without being penalized.
At any time in the year, if you contribute more than your available TFSA contribution room you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.Canada.ca/TFSA Contribution Room
If you’re worried about contributing, track each payment, so you always have a running total.
Your TFSA contribution room information can be found by using one of the following services:
- My Account for Individuals.
- MyCRA at Mobile apps – Canada Revenue Agency.
- Represent a Client if you have an authorized representative.
- Tax Information Phone Service (TIPS) at 1-800-267-6999.
Set Up A Meeting With Your Financial Advisor
We are lucky that our Manulife Financial Advisor always contacts us to set up a yearly review.
Typically this is done at the beginning of the year, and we chat throughout the year as needed.
If you don’t hear from your financial advisor, I’d probably suggest finding one you can build rapport with.
Call your financial advisor on the phone rather than email to set up an in-person or virtual annual review of your insurance and investments.
Never let your future invest without knowing what’s happening along the way.
Benefits Of Budget Preparation
To reiterate what I’ve discussed about budget preparation, I’ll summarize it below.
- I am setting realistic budget goals for the new year.
- Review the budgeting process for the current year
- Choose a budget that is right for you
- Print your 2023 Canadian Budget Binder
- Find all information about the debt owed.
- Create a receipts folder
- Set up an annual meeting with your financial advisor
Overall, getting budget-ready doesn’t take too much effort but what you put into budget preparation is what you’ll get out of it.
Discussion: What other processes do you have in place to get budget-ready for the new year?
I’d enjoy reading your comments and any additional tips you may have for CBB readers.
Thanks for stopping by CBB.
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