How to Build a Budget

Did you know that about half of Canadians (49%) use a budget to manage their money? Creating a budget can help you control your spending, reduce debt, and prepare for the future. It gives you a clearer picture of where your money goes so you can make confident financial decisions.

In this article, we’ll walk you through simple steps to build a budget that fits your goals and lifestyle.

4 Steps to Create a Budget

Learn how to create your first budget with these four easy steps:

Step 1: Set a Clear Goal

Setting a budget can be beneficial, but creating one might not always feel compelling. It’s good to have a goal in mind when you create a budget so you’re more likely to stick to it.

Common budgeting goals and examples include:

• Paying down debt

• Managing money inflow and outflow so you don’t have to live paycheque to paycheque

• Saving for a large purchase like a home or car

• Saving for a trip

• Increasing disposable income for savings or investments

Step 2: Calculate Your Income and Expenses

Calculate your monthly income and monthly expenses. In order to use more accurate numbers for this calculation, try to track everything you spend for one to two months. Remember to include things like your morning coffee, take out dinners and entertainment. This will give you a good idea of where your money goes. Tracking every single purchase might be difficult to do if this is new for you. See if your bank offers a service that tracks your spending, like the RBC NOMI app. Be extra mindful of the cash purchases you make and don’t forget to track them in a spreadsheet, a note in your phone or by using an app. There are apps available like Mint or Pocketguard, but do your research first to find one you’re comfortable using.

Once you have these results, compare what you make after taxes each month to what you spend.

If your expenditures are higher than your income, your first step is to reduce expenses where possible. This can be done in a number of ways — like cutting streaming services you don’t use often, curbing that excessive take out habit or something more significant like getting rid of a car.

Step 3: Divide Your Expenses

Divide costs into fixed, flexible, and future.

• Fixed costs are the necessities (mortgage payments, utility bills, food)

• Flexible costs are not necessary, but nice to haves (entertainment, gifts, memberships, and travel)

• Future costs are savings, the things that may be needed one day (investments, an emergency fund, insurance)

A great way to divide these costs is by using the efficient 50-30-20 rule.

Read more about how to fit life insurance into your budget.

Step 4: Review and Adjust Your Budget Monthly

Set aside time each month to check-in. If you’re having trouble sticking to your budget, it might be time to try something new. You want your budget to be realistic and not the new mission impossible.

Find YOUR maintenance approach. Track spending with a spreadsheet, carry a set amount of cash instead of credit, or like 20 per cent of Canadians, try software or a mobile app to monitor money. Some helpful tools include Mint and Budget Planner by the FCAC. Whatever the approach, find a strategy that works for you.

Source:

Financial Consumer Agency of Canada. Canadians And Their Money: Key Findings from the 2019 Financial Capability Survey. 2019.

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Frequently Asked Questions (FAQs) about How to Budget

How to divide your budget

A practical way to divide your budget is by using the 50-30-20 rule. This means allocating 50% of your income to fixed expenses like housing, utilities, and transportation, 30% to flexible or personal spending such as entertainment or dining out, and 20% to savings, investments, or debt repayment. This method helps balance your needs, wants, and long-term goals while keeping your finances manageable.

What should your budget look like?

Your budget should include a detailed list of your income sources and all monthly expenses, divided into essential and non-essential categories. It should clearly show how much you earn, how much you spend, and how much you save each month. A good budget is realistic, easy to update, and tailored to your lifestyle so it can guide your day-to-day financial decisions.

How to make a monthly budget

To make a monthly budget, start by calculating your total monthly income after taxes. Then, track all your expenses for a month, including bills, groceries, transportation, and discretionary spending. Categorize each expense, compare it to your income, and adjust where necessary. Tools like RBC NOMI or Budget Planner by the FCAC can help automate tracking and identify spending patterns.

How to make a budget plan

A budget plan outlines how you’ll manage your money over time. Begin with a clear financial goal—such as paying off debt or saving for a down payment—then calculate your monthly income and expenses. Use those numbers to create spending limits for each category, allocate funds for savings, and set up automatic transfers or reminders to stay consistent.

How much should I spend on food per month?

As a general guideline, food expenses should make up about 10% to 15% of your monthly take-home income. This includes groceries, dining out, and snacks. Your exact amount may vary depending on your household size, dietary preferences, and location. Tracking your food spending for a few months can help you set a realistic target that fits your lifestyle.

What is a personal budget?

A personal budget is a plan that tracks your income, expenses, and savings so you can manage your money effectively. It helps you see where your money goes, avoid overspending, and reach financial goals like paying off debt or building an emergency fund. A personal budget can be created manually, in a spreadsheet, or with budgeting apps for convenience.

What should my budget be?

Your ideal budget depends on your income, expenses, and financial priorities. Start by covering essential costs like housing, food, and transportation, then allocate money for savings and discretionary spending. Many Canadians use the 50-30-20 rule as a starting point, but you can adjust the percentages based on your situation and goals.

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