We’re almost finished. We’ve tested our plan and found that there are a few adjustments to make in order to balance the budget and include some actions to achieve financial goals. This is probably the hardest part of designing a budget.

Let’s take a look at how Lily did it. After taking another look at her spending history, Lily realized that she spent a lot more on lunches, snacks, magazines and weekends away than she thought. She also did a little more research on her car loan and learned that she has 2.5 more years of payments ($300 per month) but if she increases her payments to $500 she will pay the loan off in 1.5 years. She also realized that she didn’t have any renter’s insurance.

Goals:
1) Start some retirement savings (RSP – Registered Retirement Savings)
2) Buy her first home

Recommendations:
1) Establish an emergency fund – Lily could rely on her RSP’s in a pinch but it’s a good idea to build up a little cash fund.
2) Start RSP savings, even if it’s a small monthly amount.
3) Pay off the car loan to free up a big chunk of monthly cash.
4) Arrange for renter’s insurance.

Options:
1) Share the rent and utilities = free up $250 per month.
2) Extra work (4 hours per week) = $250 per month.

Actions:

1. Pursue one or both of her options to bring in $500 more per month in the short term.
2. Set up a RSP savings account with an auto savings of $150 per month.
3. Set up an emergency account (savings account) with an auto transfer of $100 per month.
4. Cut down on the snacks, lunches out & magazines to fit entertainment spending within $400 per month.
5. Take out $60 per week leaving the rest in the entertainment ‘budget’ for haircuts, gifts. Make choices on weekends away to stay within budget.
6. Cut food budget to $200 per month.
7. Increase the car loan payments to $500 per month.
8. Once the car loan is repaid, increase the RSP savings by $500 per month to $650 per month.
9. Put tax returns and any other ‘found’ money into the emergency fund.

Here’s what Lily’s new budget will look like:

Rent $1,000
Car $500
Insurance $150
Gas & Repairs $150
Food $200
Utilities $200
Entertainment $400
Insurance $30
RSP $150
Savings $100

Total Expenses $2,880 per month

The total ($2,880) is higher than her net income ($2,812) however Lily has committed to looking for a place to share with a room mate which will reduce her expenses by approximately $250 and in the meantime she will pick up extra work to bring in $250 per month. If she succeeds in bringing in the extra $500 per month it will go a long way to help her achieve her goals much faster.

Next post will be Budget Basics – Part Eight (a wrap up of this series).