Create a budget that really works

3. Calculate where to cut.
Here's where your real work begins. It's time to evaluate each category and determine how you can trim, or slash, expenses. You may be surprised by how much money gets gobbled up by seemingly inconsequential things -- going grocery shopping without your list (or when you're hungry) might eat up $50 more than usual; the Friday night dinner, movie and babysitter combo can set you back $150.

Audrey and Rick examined their spending and came up with a list of items to cut. They made some big changes -- getting rid of one car, for example -- and a slew of smaller ones. They shopped at discount food stores, Rick stopped buying coffee out every day, and Audrey discovered the advantages of hanging out laundry instead of running the dryer. Because of changes like these, they were able to live on one income until their youngest child was ready for school. By carefully examining your expenses, you'll find there's room to pare down almost any budget.

4. Review and assess continually.
Now that you've got your budget in place and you know exactly how much to allot for things such as clothes, groceries and insurance every month, the next step is to keep yourself honest by continuously reviewing your financial affairs.

Regularly assessing your budget lets you see if you're getting closer to your goals. That, in turn, helps you shed bad spending habits that had you living paycheque to paycheque. "Once you create a new pattern of spending for a few months, it becomes ingrained in your lifestyle and you'll be able to meet your goals," says Campbell.

After the first month or two, you won't have to write down everything you spend in order to keep your budget on track.

3 budget busters
Despite our best intentions to stick to a budget, it's easy to fall off the wagon and spend money we shouldn't. Beware of these potential pitfalls.

1. Gift giving. Not surprisingly, the holiday season can be the worst time for people who are trying hard not to overspend, says Laurie Campbell of the Credit Counselling Service of Toronto. "We can go over the top buying presents for people, because it's emotional spending," she says.

2. No emergency fund. Not having money saved for emergencies (such as a new roof or car repairs) can derail your budget.

3. Budgeting too well. A budget that's too restrictive can make you yearn to break loose and indulge in impulse spending. So allow yourself some small indulgences.

What to do if you slip up?
Not sticking to your budget is a lot like falling off a bike. The best thing to do is get back up and riding again. "Don't be too hard on yourself," says Campbell. Just start fresh and figure out how you can do better next month. If you've racked up expenses on your credit card, for example, make a commitment to either not use it next month or keep it at home. "The key is to learn from your mistakes."

Visit our forums to chat with other Canadian Living readers about your budget dilemmas.

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