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Making a Budget and Sticking to It
BUDGETING AND MONEY MANAGEMENT
Do you cringe when you hear the word 'budget'? Sure, a budget involves a bit of work on your part, but the payoff is financial discipline and peace of mind. Once you get the hang of it, budgeting is easy and can mean a better financial future for yourself and your loved ones.
What is a budget?
A budget is a written document or electronic file that helps you take control of your personal finances. It is an excellent money management tool that helps you achieve your financial goals. It is especially important if:
- you find that money is tight
- you don't know where your money is going
- you have problems paying off your debt
- you don't save regularly
- you want to find ways to make your dollar stretch further
A budget helps you see more clearly how much money you receive, and how much you spend and save. It helps you set spending limits and live within your means. It helps you find ways to get rid of your debts, reduce costs and have more money for things that are really important to you.
You can see what a budget looks like by going to the Budget Calculator tool on the Financial Consumer Agency (FCAC) website or going to the Budget Worksheet provided in this tip sheet. This document will help you fill out the Budget Worksheet and understand how to use it. More importantly, it will show you how to stick to your budget.
Before you start making a budget
Think about your goals
Before you start making a budget, take some time to think about your financial goals. Do you need to pay off your debts? Do you want to save to buy a home or begin building your nest egg for retirement? Do you want to go back to school or send your kids to school?
Keep track of your money
Most people know how much money they make (income). But do you know where your money is going (expenses)? This exercise will help you achieve just that. Every dollar you spend has an impact on the overall picture.
Every day, for a month or two, keep track of everything you buy, from groceries to your daily cup of coffee. Keep a copy of bills you pay during that time, and write down what you buy in a notepad or keep your receipts. Doing this will help you understand your spending habits and make a budget.
Making your budget
To help you make your budget, FCAC has developed an online Budget Calculator that does the math for you. You can also use the Budget Worksheet provided in this tip sheet.
How to use the Budget Worksheet
| Step | How to use the Budget Worksheet |
|---|---|
Step 1: |
FILL OUT COLUMN A (Previous Months)
When you are done, review the figures and ask yourself:
|
Creating a budget means looking at your past expenses and creating an improved version that reflects your financial goals. A balanced budget is when income exceeds expenses—that is, you are able to save a bit of money each month. This is the ideal scenario. Your budget is what will guide your spending in future months and help you save money. FILL OUT COLUMN B (Budget)
Once you are done, take total income and deduct total expenses to find out how much money you will be able to save. Adjust your expenses where you can so that your monthly savings help you meet your goals for the future. |
|
Step 3: |
This is the most important step in the budget process. Each month, limit your spending as much as possible to what was in your worksheet. Keep receipts, bills and lists of your income and expenses. FILL OUT COLUMN C (Actual Spending) at the end of each month (you may want to make extra copies of the Budget Worksheet for this purpose) using the data you collected during the month. FILL OUT COLUMN D (Difference between Actual Spending and Budget)
Continue with this exercise each month. Many people make this a regular habit at the end of each month. |
Learning to stick to your budget
Learning to stick to a budget can seem difficult at first, but the more you use your budget, the easier it becomes.
Evaluate your budget from time to time
If you find that your actual spending varies a lot from your budget, you will have to readjust the figures in your budget to make it more realistic. In this case, go back to Step 2 and reduce some expenses, or restrict your spending in some categories.
If your actual spending varies only a little from your budget, you are on the right track.
If you are not saving enough or are not able pay off your debts, find other ways to cut down on expenses and adjust your budget accordingly.
Keep up the good work! If you can stick to your budget closely, you should find that your income covers your expenses and that you are saving enough for your financial goals.
Budget Worksheet
| COLUMN A Previous Months ($) |
COLUMN B Budget ($) |
COLUMN C Actual Spending ($) |
COLUMN D Difference (B - C) ($) |
|
|---|---|---|---|---|
| INCOME | ||||
| Salary or benefits | ||||
| Canada Child Tax Benefit (CCTB) | ||||
| Other | ||||
| TOTAL INCOME | ||||
BASIC EXPENSES (NEEDS) |
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| HOME | ||||
Rent or mortgage payment |
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Property taxes/condo fees |
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Home insurance |
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Utilities (such as electricity, water, cable or telephone) |
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Repairs and maintenance |
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| TRANSPORTATION | ||||
Public transportation |
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Car loan payment |
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Car repairs, gas, etc. |
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Car insurance/registration, etc. |
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| LIVING EXPENSES | ||||
Groceries |
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Child care |
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Medical and dental |
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Outstanding loan payments |
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Basic clothing |
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Life, disability and medical insurance |
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Emergency fund |
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Other |
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| OTHER EXPENSES (WANTS) | ||||
Restaurants and entertainment |
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Clothing (extra) |
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Hair care |
||||
Gifts |
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Vacations |
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Other |
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| TOTAL EXPENSES | ||||
SAVINGS TO REACH GOALS (Total income minus total expenses) |
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