David Free of Meaford has served in high administrative positions in three different Ontario municipalities, and has played a role in developing annual spending plans for each of them. He received high marks from municipal officials for devising budgets that netted the municipality of Meaford large budget surpluses for three years running, when he served as its Chief Administrative Officer. One official said later that David Free of Meaford had hero status in the community, and thanked him for providing Meaford with a stable financial future.

So when David Free of Meaford discusses balancing a budget, he knows what he is talking about. And balancing a budget for your personal spending is not all that different, he believes, than balancing a municipal budget involving enormous sums of money.

A budget is one of the most basic elements of household economics, says David Free of Meaford. Without a spending plan it is nearly impossible to meet savings goals that individuals and families need to reach their financial freedom. It is important, he says, to identify all of your sources of income, along with mandatory and discretionary expenses. You also need to identify savings targets.

When it comes to household debt, says David Free of Meaford, the average household spends about fifteen to nearly twenty-five percent of their disposable income making their debt payments. Many households are not always prepared to meet the financial challenges of creating a balanced budget. Those that fall behind on their monthly payments need to learn the basics of creating a budget, and then sticking to it. And one of the most basic rules of thumb, he says, is that household income must be greater than household expenses. And it is surprising, he adds, how many households break that simple rule.

David Free of Meaford says that sometimes people fall into the trap of thinking that income only has to equal expenses in order to have a balanced budget. But that ignores long-term planning. After all, you don't want to work forever, so it's important to save money in a retirement plan.

David Free of Meaford advises you to identify all sources of income that come into your house. That includes paychecks, of course, but also interest income, tax refunds, stock dividends, bonus payments, and gifts of money.

Next, he says, is calculating mandatory expenses like mortgage payments, car loans, and property taxes. All of the money owed to others, along with expenses like utility bills, need to be added to this category. Health care costs, commuting expenses, groceries, and other costs that help you earn your income and provide a healthy lifestyle are also considered mandatory expenses.

It's important to set aside money for the future, too, says David Free of Meaford. That is also considered a mandatory expense, and is one of the basic rules for a sound financial planning strategy.

And then there are discretionary expenses. David Free of Meaford says this can make the budgeting process trickier. It requires you to think about whether you really need to spend money on certain things, like going to the movies, eating out at restaurants, taking extravagant vacations, buying expensive clothes, and other luxuries.

Once income and expenses have been identified, says David Free of Meaford, use a formula measuring one against the other. If the value is zero, then the budget is balanced. If you're lucky, he says, there will be a surplus.