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Resolve to do a real family budget in 2011

When doing a proper financial plan, among the most important items is a realistic measure of expenses.

A simple budget is quite easy to do and yet so rarely done. Make January the time to do it. I will help.

To start the process, we ask many of our clients to complete a budget worksheet. We don't really need or want to know the details, but we want the client to understand what they are spending in each category.

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They are broken down into 10 core expense groupings - mostly to help people organize their thinking, and to ensure they don't forget anything.

The other three groupings are ones that can change significantly in retirement: debt expenses, savings (TFSA, RSP, RESP, etc.) and "other expenses," which include CPP and EI premiums. We try to isolate things that may change meaningfully over time to give clients an understanding of what will drop off the budget once they retire.

What is not included is big ticket expenses that may occur every five to 10 years. We try to either budget for them separately, or otherwise add in an amortized cost for each year.

To use our budget worksheet, please click here. It is far from the only budget sheet available online. Other decent options are at Gail Vaz-Oxlade's website and A simple Google search for "family budget tools" will help you find others.

Once the budget is complete - the important work happens. Here are a few questions to ask about your budget:

1) Can you afford to spend what you are spending?

If not, you need to start reviewing the "nice to have" expenses and trying to cut them back. My favourite spending hotspots where you can get meaningful savings without much change to your life include:

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• Can you lower banking fees by using PC Financial or ING?

• Can you lower your auto insurance costs by searching the market to see if your rates are competitive?

• Can you use the library and community centre to lower your entertainment expenses?

• Can you call your phone and Internet providers and ask "is there a better deal I can get?"

2) Can you afford to spend more?

This often can't be determined until you have done a more detailed plan, but if you can, what is your priority? Where and how much do you spend?

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3) What are your future expenses?

By understanding your expenses today, you can better determine your real expenses in the future, and it gives you a better sense of whether you are on the right track.

Budgeting is not a financial plan, but it is one of the building blocks. For those who have neither, a budget is a good place to start, and the one financial new years' resolution I strongly recommend.

I wish you all a happy and healthy 2011!

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