The first step to building a positive financial future is to have a budget and to understand your debt service ratios. What is a debt service ratio? There are actually two kinds of debt service ratio. A debt service ratio is a measurement used by the bank to determine if your bills represent an acceptable proportion of your income.

The two primary debt service ratios are your gross debt service ratio (GDS) and your total debt service ratio (TDS).

Your gross debt service ratio represents your monthly house payment divided into your gross monthly income, expressed as a percentage. The maximum acceptable gross debt service ratio is 30%. With that said, 30% is the limit so if your GDS is 30% that is not really positive. A healthy budget should include a GDS that's approx. 25%. If your GDS is more that 30% this is an indicator that your housing payments are too high.

Your total debt service ratio represents your monthly housing payment plus your monthly payments to all loans and credit cards, divided into your gross monthly income and expressed as a percentage. The maximum total debt service ratio is 40%. With that said, 40% is the limit so if your TDS is 40% that is not really positive. A healthy budget should include a TDS that's approx. 30%. If your TDS is more than 40% it is an indicator that either your housing payments or your payments of other debt are too high.

GDS and TDS are two components of a budget. What is a good budget? A good budget involves reasonable housing payments and reasonable payments of debt and expenses with surplus income left over to contribute to savings. A good budget should factor in all of your expenses. One key to positive money management is awareness. There are three primary budget related factors that contribute to families that live paycheque to paycheque. The first is unrealistic housing payments, the second is over spending and the third is too much debt.

When looking at your budget, consider what you spend on things like entertainment, food (especially take out and dining out) and shopping. These are the three most common places that wasteful spending occurs. Avoid credit cards and use cash as opposed to your debt card an effective way to be more aware of what you spend and to avoid incurring more debt. Set yourself a daily cash allowance that includes a weekly personal reward so following your budget is not all work with no play.

Where debt is concerned, take a good hard look at how much you owe and how you are paying your creditors. If you are only able to make minimum payments or are finding it difficult to even make minimum monthly payments, this is a sign that you may be over-extended. Sitting down with a debt consultant is one good way to realistically review the debt that you owe and your budget to come up with a financial strategy to deal with debt and improve your financial situation. If you still have questions as to what it a good budget or about debt-servicing, debt consultants can generally answer those questions for you too.