Budgeting often seems overwhelming, but in reality, it’s only as complex as you make it. Many people assume they’re worse off financially than they actually are, and pre-made budgeting templates can feel intimidating. But the good news? Creating a simple, effective budget is easier than you think!
1. Gather Information
Begin by collecting your bank and credit card statements from the past month. Categorize each transaction into broad categories such as:
- Income (Revenue): Money you receive, including paychecks, gifts, and tax refunds.
- Fixed Expenses: Rent, utilities, loan payments, insurance.
- Variable Expenses: Groceries, dining out, entertainment, transportation costs.
- Savings & Investments: Emergency funds, retirement accounts, and future goals.
Some expenses aren’t monthly but still need to be planned for—like holiday gifts, vacations, or car maintenance. A great way to prepare is by breaking annual costs into manageable monthly amounts. For example, if you typically spend $480 on car maintenance per year, set aside $40 a month to cover these expenses when they arise.
Try to allocate every dollar to help prevent overspending and ensure you can meet your financial goals. Check out our guide for Zero-Based Budgeting for more details.
Don’t get bogged down in the details. Setting aside money for savings is a good way to prepare for upcoming expenses. If tracking multiple savings categories is overwhelming, consider using a general savings fund.
2. Ensure Your Budget Balances
A common budgeting guideline is the 50/30/20 rule:
- 50% for Needs: Rent, utilities, groceries, and other essentials.
- 30% for Wants: Entertainment, dining out, and hobbies.
- 20% for Savings & Investments: Emergency funds, retirement, and future goals.
If your budget doesn’t align perfectly, don’t worry—adjusting based on your income and priorities is key! Depending on your stage of life, this guideline may need modifications. For example, if you’re still supported by your parents, you may allocate more toward savings and discretionary spending instead of necessities.
Above all, prioritize paying yourself first by ensuring you contribute to savings and investments. Generally, aim for a safety net of at least six months’ worth of expenses and start planning for retirement as early as possible. Not sure whether to invest in a TFSA or RRSP? Check out our guide on TFSAs vs. RRSPs
If your expenses exceed your income, you have two options: reduce your spending or find ways to earn more. Start by identifying areas where you can cut back—small changes can add up! Check out these practical ways to cut expenses. If cutting back isn’t enough, consider boosting your income through side hustles or other opportunities. Explore these side hustles to increase your earnings.
3. Review and Keep Your Budget Updated
A budget only works if you use it! Set aside time each week to review your spending and compare it to your budget. Ask yourself:
- Am I staying within my budgeted amounts?
- Do I need to adjust any categories based on real spending?
- What habits can I change to improve my financial health?
For example, if you overspent on dining out in the first week of the month, try to eat at home more often for the rest of the month. If you underestimated car maintenance costs, adjust your savings allocation to account for these expenses.
If you find it challenging to stick to your budget, consider using cash envelopes or budgeting apps. Cash envelopes help you visually track spending by dividing money into physical categories, while apps automate tracking and provide real-time insights.
Check out our post on Envelope Budgeting for the best ways to use envelopes for budgeting.
Final Thoughts
Budgeting is one of the most powerful tools for financial success. Whether you prefer a simple or detailed approach, the key is making it work for you. Start small, stay consistent, and watch your financial confidence grow!
Budgeting is one of the most powerful tools for financial success. Whether you prefer a simple or detailed approach, the key is making it work for you. Start small, stay consistent, and watch your financial confidence grow!