Budgeting: A Process

Tips from Sarah & Cyndy


by Sarah Chisholm
Financial Advisor, O’Farrell Wealth & Estate Planning | Assante Capital Management Ltd.

As inflation and gas prices continue to be at historic highs, individuals are turning back to budgeting as a tool to live within their means. Budgeting can be a very challenging and even disheartening experience and should be thought of as a process that needs to be reviewed consistently.

Step one is to create a list of incomes and expenses. For those handy with excel, it can be a very useful tool for tracking. The income section of your budget captures your various sources of income: pay cheque, money from a side hustle, rental income etc.

On the expense side, it is important to look at expenses as they come in. If possible, build your excel budget so that you can list expenses as daily, weekly, bi-weekly, monthly, quarterly, or annually and then tag those expenses to specific months. This helps you estimate the expenses you will have each month. Not every month is created equally, and knowing the breakdown is an important aspect of budgeting.

Step two is to review. Tally up your total income versus your expenses. If expenses are higher than income you have two basic options. One – find ways to increase your income. Two – find ways to reduce your expenses.

Step three is to budget funds for the month to include a sinking fund and an emergency fund. Regular monthly expenses should be allocated monthly. The extra lump sum expenses throughout the year should be allocated using a sinking fund. A sinking fund is an account you save into every month until major expenses arrive. For example, for 10 months of the year you could set aside 50/m so that in November and December you have a pot of $500 that can be spent on Christmas. Property taxes is another great example. You know roughly what your tax will be annually and that it comes due at certain times of the year. Take your 2021 tax bill and divide it by 12. Start setting aside this amount immediately so that when the next bill comes due you have the cash available.

In addition, building an emergency fund will provide a safety net for all your regular expenses in case of an unexpected illness or layoff that impacts your pay cheque. Ideally an emergency fund should hold enough to cover three months of expenses.

Step three is to revise your budget as you go forward. Update your expenses to show the impact of inflation. As credit card debt and line of credits are paid off, build in new goals such as saving for retirement or for a vacation. Celebrate when you transition from credit card debt to a flush sinking fund and emergency fund.

Budgeting is not meant to be simple. It is a process of getting your cashflow in line so that you can enjoy life within your means. A trusted financial advisor can sit with you to build and review a budget.

We welcome questions so please reach out! See our ad in this week’s North Dundas Times and follow us on Facebook @OFarrellWealth.

Sarah Chisholm is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 613.258.1997 or visit ofarrellwealth.com to discuss your circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada


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