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Every semester, Nigel Heath asks his financial-planning students, who range in age from teenagers through to retirees, how many of them have family budgets.

"It's never more than 10 or 20 per cent of the hands that go up," says Mr. Heath, who teaches at Toronto's Seneca College. "I'm always surprised."

The federal budget will be presented in Parliament tomorrow, and financial experts say it is time families across Canada took a cue from Ottawa and made their own money plans public, declaring where their income is coming from and how it will be spent, and whether they will run a deficit or slash spending.

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"Having a budget is the first step in avoiding financial difficulties," Mr. Heath says. "It's the best thing [families]can do in difficult times. When jobs are threatened, having a plan in place that gives you confidence that can see you through the difficult times is of utmost importance."

Last month, Bank of Montreal released the results of a national survey that found nearly seven in 10 Canadians don't have a budget. Eighty per cent of respondents said the current economic downturn is not enough incentive to create one.

"When I see that, I go 'Yikes!" says Judy Thomson, director of the bank's retail investments. "You need to know how much money is available to you for spending. How much of that are you allotting to your children's education? How much are you allotting to retirement? Then how much money is left? You need to know what that is. If not, how do you plan for emergencies?"

When it comes to family finances, ignorance does not mean bliss. A study released last week by the Vanier Institute of the Family found that Canadian families aren't well positioned to weather the current economic crisis.

The study, The Current State of Canadian Family Finances - 2008 Report, found that the average household income is 12-per-cent higher than it was in 1990, but spending is up by 24 per cent and total family debt is up 71 per cent, growing six times faster than incomes.

"We're anticipating a pretty hard time ahead of us," says Clarence Lochhead, executive director of the Vanier Institute of the Family.

"When you look at what's been happening on the debt side of things and the spending side of things around households, they're not very well-equipped in terms of being able to absorb the financial shock of this recession."

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Creating a family budget is not difficult, Ms. Thomson says. A range of online tools are available to help families draw up financial plans.

"It shouldn't be complicated," she says. "Here is your income. Here are your expenses. What's left? And whatever is left, how do you best use that?"

Al Nagy, a certified financial planner in Edmonton, says that honesty and transparency are the best policy when creating a family budget. You may not need to inform your children about your credit-card debt, but let them at least know the general outlines of the family budget.

"It's important to make your children money-aware early on," he says.

"If the children observe their parents being money-smart, they will develop those characteristics naturally."

Indeed, think of sticking to a budget as a group effort.

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"It's beneficial to consider the family as a financial team," Mr. Heath says. "All team members should be in on making decisions or being aware of the current status of the financial situation." Making it a team effort will help cut down on the stress of constantly nagging the kids to turn off the lights or spend less time in the shower.

Even wealthy Canadians need to budget, says Michael Downs, senior vice-president of private capital at Connor, Clark & Lunn Financial Group, an asset management company in Toronto that caters to high-net-worth clients.

"Even within the context of our client base here, like a lot of things, it always comes down to a plan, and a budget is nothing more than that," he says.

"You can make a ton of money, but if you're not living within your means, you're in just as much trouble as the person who makes half as much as you and lives outside their means."

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Plan for the worst

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Making and sticking to a budget "is not rocket science," says Al Nagy, a certified financial planner in Edmonton. "It's discipline." Here are some expert tips to get you started.

Pay yourself first. Put money aside right off the bat for a family dinner or an afternoon out. Paying the bills and other debts first is a recipe for disappointment. "You end up with a very unhappy saver at the end because there's very little left over," Mr. Nagy says.

Create short-, medium- and long-term goals, says Jeanette Brox, a certified financial planner with Investors Group in Toronto. A short-term goal could be saving for a vacation. A medium-term goal could be to pay the mortgage down in seven years. Long-term goals can be anything from retirement to buying a cottage where you can spend your golden years.

Plan for the worst-case scenario. "That's where budgeting rubber really hits the road," says Michael Downs of the asset management company Connor, Clark & Lunn Financial Group. A rosy plan may make you feel good, but it's not going to be any help when a rainy day comes. Having an emergency fund at the ready is essential.

Update your budget regularly. You don't have to go over it line by line each week, financial planners say, but sit down every few months and review. Doing so will help you see how the money is being spent, which will make it easier to save it.

Don't worry about budgeting every last penny. A budget shouldn't be a straitjacket. Instead, make sure everyone in the family has a certain amount of money they can spend as they choose. Of course, in tough economic times, it can be tempting to be exact about every dollar spent. Avoid that temptation. "That's a great way to end up in divorce court," Mr. Nagy says.

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Dave McGinn

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