A budget is a tool that allows you to take control of your personal finances and to make the best use of your income in order to meet your needs, according to your values and preferences. It also helps you to plan and to ensure that you reach your objectives. When we realize where our money is going, some options may become more apparent.
In preparing your budget, generally your goal is to balance your income with your regular expenses, savings for your financial goals and repaying your debts. It is worthwhile to consider past spending when formulating a budget. Keep it simple, the more complicated the budgeting process is, the less likely a person is to keep up with it.
After preparing your budget, if it indicates that you have a shortfall, review your budget to see where you could reduce spending. You could also consider whether there are ways to increase your income. If you have money left after you have completed the budget, consider using it to repay debt, particularly non-deductible debt, faster or to increase savings for an important financial goal.
Other considerations when preparing and following a budget. You should regularly track progress against your budget. Depending on your circumstances, you might want to have some flexibility in your budget. Preparing a budget when you have irregular income or a number of "one-time" expenses can be tricky. To avoid running out of money because expenses occur before the money actually arrives you should establish an emergency fund.
There are a number of tools available to help in the creation of a budget, such as spreadsheets, personal financial software and online budgeting tools. They generally provide a good starting point for preparing a budget, but remember simplicity will typically increase your chances of successfully following your budget.
Before you start
Budgeting typically starts with some thoughts on what are your financial goals? Write them down. The next step is keep track of your money for a month or so. This will help you understand spending habits and expenses. Consumer advocates generally recommend tracking everything on a daily basis during this time.
Making your budget
- List your previous income and expenses
- Create a balanced budget
- Use your budget each month
You can use the sample Budget Worksheet below as an example, or the Financial Consumer Agency of Canada (FCAC) has developed an online Budget Calculator that does the math for you.
Tracking your budget
Once a personal budget has been created does not mean the effort is done. You should track your monthly income and expenses against your budget. If you find that your actual amounts are not matching up to your plan, then adjustments should be made, either in budget amounts or spending habits.
Sample budget worksheet
|Previous Month ($)||Budget ($)||Actual Spending ($)||Difference ($)|
|Salary or benefits|
|Canada Child Tax Benefit (CCTB)|
|BASIC EXPENSES (NEEDS)|
|Rent or mortgage payments|
|Property taxes/condo fees|
|Utilities (such as electricity, water, cable or telephone)|
|Repairs and maintenance|
|Car loan payments|
|Car repairs, gas, etc.|
|Car insurance/registration, etc.|
|Medical and dental|
|Outstanding loan payments|
|Life, disability and medical insurance|
|OTHER EXPENSES (WANTS)|
|Restaurants and entertainment|
|SAVINGS TO REACH GOALS (Total income minus total expenses)|
- Financial Consumer Agency of Canada, Making a Budget and Sticking to It, viewed August 25, 2012.
- Office of Consumer Affairs (OCA), Your Budget
- Financial Consumer Agency of Canada, Home - For Consumers - Budgeting and Money Management - Budgeting
- The best of the free online budgeting tools - The Globe and Mail
- Statistics Canada, Spending Patterns in Cananda, 2009
- Budgeting | Investor Education Fund
- Household budgeting, from the Bogleheads Wiki