beginners guide to budgeting

The Beginner’s Guide to Budgeting

Budgeting. Everyone knows about it, yet so many of us don’t do it. Even the word BUDGET itself strikes fear into the hearts of some. If just thinking about budgeting has you breaking a sweat or causing your stomach to lurch, you are not alone. No matter how it makes you feel, I want you to know this: you are here and you are reading this because you searched for help. I am here to help. My goal is to help you feel less broke, less stressed and more in control.

What is Budgeting?

If you’ve tried budgeting in the past and failed, it wasn’t because you failed. It was because your budget didn’t work well for you. Most web searches on budgeting will have you attempting to micromanage your expenses each and every month. It works for some people, but for most it’s a short road to disaster and more feelings of failure and inadequacy. It’s not based on real life.

Think of this post as a useful tool that helps you plan your future spending. It’s work now, so you can have fun later! It doesn’t mean that you can’t buy that Starbucks or those shoes you’ve been wanting. What it means is that you are choosing what you realistically can and cannot afford to spend. Maybe you need to limit how many times per week you go get that latte in order to save up for those fabulous stilettos.

Whether you are getting by just fine, or strapped in debt, you need a budget. I don’t care if you make $50,000 or $150,000. Everyone needs a budget.

How to get started with Budgeting

I want you to remember something: There is no one-size-fits-all budget. What a budget looks like for you, isn’t the same as your neighbour’s budget. What works for Mom, may not work for you. It’s a work-always-in-progress.

After a month or two, you might find that you want to change your budget and use a different method. You do you! Just keep at it, keep making it work for you.

Now, while all budgets look different, they all have one thing in common – and that’s how you get started.

Step 1 –  Expense Tracking

(This post contains affiliate links, which means I receive a small commission, at no extra cost to you, if you make a purchase using this link. These small commissions help keep this site running!)

The very first step in setting your budget is to track your expenses. I tell all of my clients the same thing – a budget is useless if you have no idea what you’ve been spending. Deciding to spend $200 per month on gas (when you normally spend $400) is setting yourself up for failure. Does this mean that you need to spend the same amount on gas every month? Not at all, but having an idea of what your life costs makes the rest of the process way easier.

You may need to go through your bank statements and credit card statements for the past 3-6 months and make a list. The easiest way to do this is using a spreadsheet or notepad, and creating categories for each expense. Some of them will be obvious (such as car insurance or groceries), and others you will need to pick a category. Will your dog food be part of your groceries, or perhaps it’s own “Pet Expense” category? Don’t spend too much time deciding on categories, as long as the expense is written down.

Include any debt payments you’ve been making. Make note of the minimum required payments.

Please do not forget about things like bank charges, overdraft interest, etc. These are super important as they are an expense that you pay and ideally you’d like to reduce them to a minimum.

Do you pay for everything with cash and don’t have receipts? The good news is that you are already in a good habit with the cash (you can’t put cash into overdraft!). The bad news is that you may have to spend a month or two keeping receipts and writing everything down before you get started.

Once you’ve finished tracking, add up your expenses in each category. For each category, divide your total amount by the number of months you tracked. For example:  $1200 in gas 4 months, equals an average of $400 per month.

The last part of Step 1 is to add in any irregular expenses (things you pay less than monthly such as a gym membership, subscriptions, auto license, insurance, vehicle maintenance/repairs, Christmas shopping, birthday gifts, glasses, dentist visits or anything else you might pay for less often.) If you pay for insurance annually, divide the number by 12. If you pay for a gym membership every 3 months, then divide the payment by 3.  Christmas shopping, add up how much you spent last Christmas and divide the total by 12. Even though you didn’t go Christmas shopping in June, you need to know how much you should have set aside each month in order to avoid going into debt at Christmas.

Step 2 – The Shocking Truth

You’ll need to know your monthly income.  If you are on a fixed income or salary, this part is easy. If you get paid bi-weekly, base your monthly income on 2 average pay-cheques (or 4 if you get paid weekly). The reason for this is because 10 months out of the year this is your realistic income. If you try to budget based on your true average (ie. 4.33 weeks) then you’ll fall short on each month that you didn’t get that extra pay. If your income is irregular (such as self-employment, contract work, income that commission) then you might need to gather the past 3-4 months worth and calculate an average. Going forward I recommend basing your budget on your lowest monthly income, if possible. Don’t worry, we’ll make plans for when you get extra income.

Add up all of your monthly expense averages. Compare this to your monthly income. Which number is higher? At this point you are somewhere between breathing a sigh of relief (your income is higher) or you are about to throw up and would rather to curl up under a blanket instead of reading this blog (your expenses are higher). Don’t go. This is worth it, I promise.

This is where you get a snapshot of how you are doing financially. Relax and know that this is only your financial past, not your financial future.

I have no idea where my money goes every month.  You can see where the money has gone, but what we really need to focus on is where is my money going to go?  The problem with most traditional budgets is that despite your best planning, unforeseen expenses creep in each and every month. You’ve budgeted $30 for dining out and spent it last week. Then you get a call from your mom saying your Aunt Betty is in town and they are going out for dinner. You rarely get to see Aunt Betty, so naturally you are likely going to join them for dinner before she leaves in the morning. You spend $50 that night and feel sick when the bill comes. You’ve already spent your dining out ‘allowance’ so you take the money from groceries. You feel like a failure already. This feeling usually leads to “what’s the point, I can’t do this anyways” and the rest of the month follows a similar pattern of guilt, failure, repeat. If this is you, remember what I said earlier – you are not a failure, you were just following a budgeting method that didn’t work for you. The budget failed you, not the other way around.

Another likely scenario is that until now you are happy to report that you’ve been able to afford your life (aka. you’ve kept up on your bills and been able to go out for dinner whenever you want). However, you have little or no savings, and at this point in your life you are beginning to feel like you are “bad with money”. The fact that you are reading this indicates that you are not at all bad with money, you just haven’t found the right strategy yet and want to make changes.

Step 3 – The Future Looks Bright(er)

If you’ve done the first two steps in one day, take a break. Seriously. You’ve done the hard work, felt the pain (or the relief). Pat yourself on the back and take a much needed breather to digest what you’ve learned so far.

Welcome back.

What’s next? Let’s dive in.

Now I want you to get out that expense list again. There’s a lot of numbers on there, right? This is the best part. Let’s simplify it. You won’t need to be staring at these numbers every month, I promise.  I want you to take every expense category and put it under one of four groups:

Fixed Expenses

This is money usually dubbed as “bills”. It’s money that’s basically not yours to begin with because it’s committed to something else. Any expenses that you must pay like rent, cell phone, utilities, insurance. This doesn’t really mean necessary living expenses, it could be expenses that are by choice like a gym membership or music app subscription. This also includes any minimum debt payments. Make sure you include any expenses that you only pay once per year or once every three months or… well you get the picture. If you pay annual insurance, take the total that you pay and divide it by 12. A quarterly water bill would be divided by 3. Chances are you did this in the previous steps, but I want to make sure that it’s done this way to avoid pitfalls later. Some of your bills may fluctuate each month like hydro or gas. You can either opt to be set up on an equal billing plan so it’s the same every month, or you can go through the last 6-12 months worth and calculate an average. Example, a water bill that you pay every three months, Find your last 4 bills paid. Add them up to find out how much you paid in the past year. Divide that total by 12 to find your monthly average.

Long-Term Savings

This is money that is working for your financial future. Over time it’s increasing your net worth or accomplishing a larger financial goal. This would be retirement savings, saving up for a house down payment or large renovation, children’s education (like RESPs) and any debt payment over the minimum payment.  You included the minimum in your fixed expenses, as you have to pay that and it’s most likely the interest accrued for the month and not actually paying off the debt. If you have a line of credit and  the minimum payment is $50, but you typically pay $200, you would include $50 in your Fixed Expenses and $150 ($200 less $50) in your Long-Term Savings. If your mortgage has the option of making prepayments, you would include any of those additional payments in here as well, as those payments directly increase your house equity. If you don’t yet have anything to list here, let’s consider this a goal to work towards. For this step I’d like you to list what you would like to put in here. Later we will decide if you can afford it.

Short-Term Savings

This is money set aside for big purchases (like a car or new appliances), travel, emergencies and spikes in spending. An example of a spike in spending would be Christmas or any other holiday in which you typically spend more money. Think of how much you spend on gifts, decorations, extra food for family meals or parties, etc. Chances are you don’t likely make extra money during those times, but you spend more. Instead of putting it all on credit, it’s best to save for it monthly. Same as your Long-Term Savings, I want you to list a goal amount (keep it reasonable, if you know you can never afford it based on your income, think of something more affordable – you won’t be able to afford a $10,000 trip every year on a $2,000 monthly income, sorry!).

Spending Money

Last but certainly not least! I listed this last, because I want you to plan the first three and this is for what’s left. This category is for money that serves no other purpose but feeding you, getting you around and ensuring you can still live a life. For now I do want you to add up all the expenses that you listed in Step 1 here. You’ll have two amounts – the total of what you’ve been spending, regardless of affordability, and the amount that’s “left over” after your first three categories have been added up. If both numbers are the same, congratulations you get a “get out of step 4 and move directly to step 5 card”… but for the remaining 99.5% of us… let’s move on to the next step.

Step 4 – Sweet Financial Harmony

So far you’ve seen where your money has been going, you’ve decided where you would like your money to go in the future. This step is for bringing both together in sweet financial harmony (those words are worth mentioning twice).

We are going to go back through those four categories, but in a slightly different order.

Fixed Expenses

In order to be able live comfortably, the total of this category should be less than 55% of your monthly income from Step 2. If this is you, you can now jump to the next category. If your fixed expenses are higher than 55%, you’ve got too much of your hard earned money committed to payments and the rest of your life is much less affordable. You should keep reading.

In order to bring that percentage down, you have two choices. You can either increase your income, or decrease your fixed expenses. I’ve listed some ideas to help you achieve this:

Approach your boss for a raise.

This takes some guts, and in today’s economy the chances that your boss will say “I agree, let’s raise your salary” are somewhat slim. However, if you haven’t gotten a raise in a while, and you feel that you deserve one (slackers need not attempt this), it’s always worth a try. You’ll never get fired for asking for your worth. Check out websites such as this one to find out what other employers are paying and bring it to your meeting. Make sure you ask your boss to set aside some time with you, don’t just walk in unannounced and expect to get his/her undivided attention much less a raise;

Move on.

If you do feel that you are being paid much less than the industry average, and you’ve approached your boss and been rejected, consider applying elsewhere. A quick Google search on job search websites will give you quite a few results. It never hurts to put yourself out there. You don’t need to quit your current job, but you can post your resume and apply to other interesting positions to see what comes of it. If you get an interview, be sure to inquire about salary/hourly rate. Any employer will understand that this is of importance to you. You need to be able to compare what’s being offered to what you already have;

Take on a part-time job.

If you have spare time that you aren’t sure what to do with, taking on a part-time job in addition to your current job would make a huge difference on your budget. Plus as an added side effect, you’ll have less time to spend money;

Side Hustle.

Perhaps you have a blog or YouTube account. If you haven’t already looked into ways to monetize it and make money, please do so! Are you an IT specialist? Love walking dogs? Post a flyer on a local bulletin board or advertise yourself on social media. If you are the crafty type, maybe you could sell what you make. Find a local craft sale or craft website to sell your goods. Be sure to do your research on fees and such to ensure it’s worth it;

Cancel some or all entertainment subscriptions.

If you have any subscriptions that you can live without, consider cancelling them to save some serious dough;

Review your phone/cable/internet plans

See if there is anything you could cut out. Perhaps you could get rid of your pricey data plan and opt to check your social media accounts in WiFi areas only. Many areas offer free WiFi. Call your service provider, you’d be surprised how you might wind up with the same (or better) plan for a cheaper price if you threaten to move your service elsewhere;

Review your insurance plans.

See if you have any unnecessary coverage. An example would be that you originally told your insurance company that you drive 40,000 km per year and you’ve since switched jobs and only drive half that much. Another example, you realize that you are still insuring that ATV that you sold two years ago. Call around for insurance quotes. You might save money just by switching companies;


Maybe you prefer the quiet country or a large house. But if you are struggling you really need to consider your options. You’d be surprised by how adaptable we humans can be. If you rent look for options with cheaper rent, cheaper utilities, closer to work, etc. If you own your home, and have any house equity, consider downsizing. Not only would you be left with a lower mortgage payment, but you could potentially have enough proceeds to pay off some debt (another fixed payment to get rid of.) Be sure to look into any moving costs/mortgage penalties as well;


If you have quite a few minimum monthly debt payments, you may want to consider approaching your bank for a consolidation loan. Even if your payment is as much as the previous payments, chances are that those monthly payments will now be paying off your debt and not just monthly interest. A 5-year consolidation loan may not decrease your fixed expenses right now. But it would mean that 5 years from now your fixed expenses will decrease by the entire payment amount. #Goals!

I do have one exception to the 55% rule, and that’s if you have young children in daycare. The cost of daycare (at least in Ontario) is astronomical. Sometimes this one expense alone can take up 50% or more of one person’s income. The good news is that this will end eventually. Your kids will get older and start school, and your fixed expenses will go down. If you can make it through the childcare years and break even without additional debt, you are winning. You may not be able to contribute a lot towards long-term or short-term savings during these years, and that’s okay.

Money for your fixed expenses will be left in your main chequing account. Consider that money dead to you, it’s not yours. Pretend there is a big DO NOT TOUCH sign on it. Heck, you could make that the name of your bank account if you wish. Every dollar in there has a job, even if it’s not for months (for expenses paid less than monthly). If you can, set up an automatic monthly payment from your bills account.

The money that is yours (your spending money) will be in a different account. Read on.

Spending Money

Here is where this budgeting method takes a big turn away from traditional budgeting. You don’t need to track these expenses every month. You only need to keep track of how much spending money you have. The amount in your spending money is your spending limit. Life changes from month to month. One month you might host a get together, the next month you need to pay for a school trip. With this method you only need to make sure you are staying within your total spending limit, and you need not worry about whether there is money left for your bills.

Let’s get back to those two numbers you have written down. The amount you’ve been spending versus the amount you can afford to spend (let’s call it your spending goal) if you want to contribute to both long-term and short-term savings. If you made any changes to your fixed expenses, you’ll need to recalculate your ‘goal’ amount that you had. I’m going with the assumption that there is a difference between your numbers. You will need to make some changes to your future spending in order to achieve your financial goals.

When thinking of what you’d like to change, remember that this is YOUR budget, so you get to decide what is important. I can’t tell you what you should be cutting back on because everyone has different feelings about their spending. An example: dining out – for one group of people they may spend too much on dining out simply because they lack the discipline to take the time to cook, or give in to an easy craving. It’s easy to assume that this is the case for everyone. Now look at another group of people – they meet every Friday after a long work week and enjoy a drink and some good food. It’s their way to unwind at the end of the week and also their social time. The first group may choose to limit their dining out on a budget, yet for the second group they are too emotionally attached to this expense and can not cut it out without taking a big emotional hit. The second group of people are likely to fail on that very same budget.

You can cut your spending without sacrificing happiness. I want you to look back at what you wrote down under spending money. Go through each expense category, but instead of looking at the amount spent, think about how that expense makes you feel? Give each one a rating from 1 to 5, with 1 being “I hate that I spent money on that” to 5 being “I enjoy/need that and have zero regrets”.  If you were to cut out each 1 and 2, how much closer are you to your goal number? If you still have more cutting to do, move on to the 3 expenses. Maybe you could set a monthly limit on what you spend in just that category? What I’m getting at here, is that instead of tracking each and every time you get your wallet out, you only need to track the expenses that you are trying to limit.

Let’s look at that goal amount again. Is it realistic? If you’ve cut down your spending as much as you can without giving up life in general, perhaps the issue is your goal amount. Let’s be real – trying to live on a strict budget does not work. It might work for a month or two, but you won’t have long-term success. Instead of trying to further cut your spending, let’s switch gears and try to increase your goal amount. Take a note of how much further you need to increase your goal amount to match your spending. Revisit your long-term and short-term savings, make any necessary adjustments to those numbers to make it work. Does it mean you’ll never reach your financial goals? Not at all. Perhaps it will take a bit longer, or perhaps some of your goals weren’t as realistic as you thought. Plus, you can add to these savings accounts when you get any extra payments (if you are paid bi-weekly/weekly then you will get 2/4 extra cheques), bonuses, tax refunds, money from selling an asset, etc.

Here’s how I want you to track your spending money. Open up another bank account. Usually when I make this suggestion, the response is “doesn’t that mean I will have to pay another monthly fee?”. Yes, it likely does. If you already have a few accounts at one bank, they may be willing to negotiate a lower fee. It is something you’ll have to work into your fixed expenses, or just include the fee in your spending money. Trust me, the peace of mind you get from not needing to track every penny and knowing that the money is in your account for your monthly bills is way more valuable than the two Starbucks coffees per month that it costs. Each pay day, you are going to transfer your spending money into that account. If you get paid bi-weekly, you’ll transfer half of your monthly amount. If you get paid weekly, you’ll transfer 1/4 of it each week.

If it’s two days before pay day and your family wants to have a pizza night, you only need to check your spending account. If you have enough money – go for it! If you’ve only got $10 left, eat soup and plan to have a pizza night after payday.

Short-Term Savings

By this point you’ve already decided on how much you can contribute here. Now you just need set up your banking effectively so that you don’t have to put much work into this later.

You will want to have some sort of method to tracking your savings. You can either transfer all of your short-term savings into a savings account and track on a spreadsheet/workbook, or you can even have several savings accounts. Most banks do not charge a monthly fee on savings accounts. I suggest at least letting your emergency savings have it’s own account. If you do online banking be sure to rename each account to the appropriate category.

Set up a monthly automatic transfer. This is truly having your money work for you!

Long-Term Savings

Again you’ve already decided on the numbers. Anything in this category is not going to be touched in the near future, so you’ll want to put this money into an investment account (except debt repayment.) If you don’t already have the accounts (ex. RRSP, RESP, TFSA), I suggest meeting with an investment advisor to get advice on which accounts will work best with your goals. Make sure you set up monthly automatic transfers!

Step 5 – Putting your plan into action

You’ve now made yourself a worry-free plan to cover all of your bills, payments, spending and savings. But wait, you’ve done the number crunching… how do you get started?

You will want to start at the beginning of the next month. It’s easiest because you now have a ‘monthly’ budget.

Let’s use Suzie as an example:

Suzie works full-time at an busy accounting firm and takes home $2,000 bi-weekly (after taxes and deductions). Until she was set up on a proper budget, she was managing to live her life and not accrue any additional debt over her student loans. Her problem was that she had no plan, she felt was only able to afford her minimum payment on her student loans. Her parents had gifted her money when she graduated university, and she had been using that for travelling with her college friends once per year and had about $900 left.

We calculate her monthly income to be $4,000 ($2,000 x 2). Her minimum required student loan payment is $55 but she has gone through her numbers, just like you, and figured out that she can afford to pay $150 per month. She loves music and listens to it every chance she gets, so a monthly subscription was rated as a 5 by her. She decided to trade in her SUV (it costed her more in gas than she had anticipated, was hard to park, and she gave it a 2 rating), which had a monthly payment of $690 for a more affordable car with a lower lease payment of $350 to lower her fixed expenses. Travelling with her friends is really important to her (another 5), so we made a plan to save for a trip each year. She also has a couple of friends getting married in the next year, which means she needs to plan for wedding showers, bachelorette parties and the weddings. She does not have a company pension plan and knows that she needs to set aside money for her retirement. She also knows that one day she would like to buy her own house.

After making the necessary adjustments, here’s how her numbers worked out:

Monthly after-tax income                                $4,000
Rent                                                                         $900
Phone                                                                      $100
Music app subscription                                             $10
Student Loan minimum                                             $55
Car payment                                                            $350
Car insurance                                                           $125
Total                                                                    $1,540
RRSP                                                                        $400
Student loan above minimum                                  $95
Down payment savings                                          $240
Total                                                                      $735
Vacations                                                                $120
Gifts and Weddings                                                  $50                                                                    Emergency Savings                                                  $80                                                                  Total                                                                      $250
SPENDING MONEY LIMIT                                $1,475

When Suzie gets paid, she knows that the money she can’t spend will stay in her main Bills and Savings account, and what she can spend will go into her Spending Money account.

Monthly Amounts
After-tax income                                                 $4,000
Bills and Savings Account                                   $2,525
Spending Account                                              $1,475

Suzie gets paid bi-weekly; $2,000 is deposited into her main chequing account. Since $2,525 is to cover her Fixed Expenses, Short-Term Savings and Long-Term Savings, then we divide that number by the number of pays she gets each month (2), so that she knows how much needs to be left to ensure everything is covered. Suzie needs to leave $1,262.50 ($2,525/2) in her chequing account from each pay, and she needs to transfer $737.50 into her Spending Account.  She has all of the automatic transfers set up for both her Long-Term and Short-Term savings accounts, so all that she needs to do is watch those numbers grow over time. She even set up her bills on automatic payments so that she doesn’t have to worry about any late payments.

Now, because nothing in life is ever this easy, Suzie has a bit of initial planning to do for the first month. She needed to map out her payments to see how her first month would work out.

Rent                                         $900          5th
Phone                                      $100          8th
Music app subscription             $10        20th
Student Loan minimum            $55        20th
Car payment                           $350        10th
Car insurance                          $125        30th
RRSP                                       $400        25th
Student loan above minimum $95         20th
Down payment savings         $240         25th
Vacations                               $120         25th
Gifts and Weddings                $50          25th                                                                                      Emergency Savings                 $80          25th

Next month she gets paid on the 4th and the 18th. Because her highest payments are due in the first half of the month, she’s asked her bank to automatically transfer all of her savings amounts on the 25th of each month. Her rent is paid on the 5th of every month. Her phone bill and car payment are also due before her 2nd pay. She will end up short. She will need to pay out $1,350 from her 1st pay, but she is only leaving $1,262.50. This means that she would be short by $87.50.

She’ll get around this by making sure there is $87.50 in her account before her 1st pay. She’s decided to take this out of her remaining savings that her parents had gifted her. She will only need to do this once, and then she won’t have to worry about this again. Here’s how her first month will work out:

Transaction                       Date      Amount      Balance Left
Buffer from Savings            n/a            $87.50                $87.50
Pay 1                                   4th            $2,000           $2,087.50
Transfer to Spending          4th         ($737.50)              $1,350
Rent                                    5th              ($900)                 $450
Phone                                 8th              ($100)                 $350
Car Payment                     10th              ($350)                     $0
Pay 2                                 18th            $2,000               $2,000
Transfer to Spending        18th         ($737.50)          $1,262.50
Student Loan Payment     20th              ($150)          $1,112.50
Music App                        20th                ($10)          $1,102.50
RRSP                                 25th              ($400)            $702.50
Down Payment Savings    25th              ($240)            $462.50
Vacation Savings              25th               ($120)            $342.50
Gifts/Weddings Savings   25th                 ($50)            $292.50
Emergency Savings          25th                 ($80)            $212.50
Car Insurance                   30th               ($125)              $87.50

As you can see, at the end of her first month she will have $87.50 left in her bank account which will again act as a buffer the following month.

Since Suzie is paid bi-weekly, she will have two extra paycheques in the next year. Because all of her Bills and Savings are already planned for and covered, she will only need to transfer $737.50 into her spending account and will have $1,262.50 that she can use for whatever she wishes. She’s decided to split the money into three. She will put $420 into each of her Down Payment Savings and Emergency Savings and will have $462.50 left to reward herself for sticking to her budget. She plans on upgrading her phone next time she gets to treat herself.


Frequently asked Q & A

Why should I be saving money, when I still have debt to pay? Won’t I save on interest by focusing on my debt?

When you already have debt, it can feel like it’s constantly nagging at you and it’s normal to want to focus on paying it first.  Maybe you feel a pang of guilt every time you login into your online banking. When you have savings built up, it will give you a feeling of success. This is what I want you to feel every time you look at your banking. Also, life will give you unexpected financial events (such as a car break down, an injury) plus increases in spending (holiday season). Your savings accounts will get you through these times, and you won’t feel any guilt because that was the job of those accounts to begin with. If you rely on credit to get through these increases in spending, it will most likely lead to feelings of “I’ve already failed by adding to my debt, I’m bad with money, screw it” and “well I just added another $600 to my credit card, what’s another $200?”. Both of these types of feelings will lead to more unplanned spending, more debt and right back to where you started when you found this blog.

I like to use my credit cards for the rewards. I use these rewards to treat myself. Can I still follow this plan without giving up my credit cards?

Yes. You can continue to use these cards. You will need to login to your online banking every night (make it part of your evening routine like teeth brushing) and take the money from your spending account to pay anything you spent on credit that day. This way you can still monitor the balance of your spending money and stay within your limit.

How will my Bills and Savings account cover my fluctuating utility bill? It’s not the same every month.

At the beginning I had you find your average amount by looking up the past year’s worth of bills. When you leave enough for the average amount, it will cover all of the ups and downs. I suggest either hanging on to your bills or tracking the amount due each month on a spreadsheet. This makes it an easy way to review again (I think every 6 months is good enough) and adjust your average as necessary. Remember that when you adjust any of your payments, you will need to adjust the rest of your budget to stay balanced.

Do I have to redo this budget every month to keep track of changes? That seems like a lot of work.

Hell no. This budget is designed for real life, and nobody (not even us bookkeeping and budgeting nerds who love spreadsheets) would want to do this every month. As long as you’ve gone with your average income and payments, you should be fine. Personally I like to begin with a $200 buffer, even if all of the income and payments line up. This way if your first few payments are higher than average, you should be okay. I also recommend keeping a template version of all of the numbers you’ve crunched. Every 6 months you can review what you’re average pay cheque has been (if you are not salary and it varies at all) and review what your average fixed payments have been. Anytime you experience an immediate change (a raise in salary, an increased phone bill, a debt paid off) you can make any immediate adjustments.

My car/mortgage payment is bi-weekly. Do I just base my budget on two payments, just like my income?

No. In this case you will want to have money in your account to cover your average payment. For example, if you pay $500 bi-weekly as a mortgage payment, you pay $1,083.33 ($500 x 26/12) per month, on average. If you are paid bi-weekly as well, you will leave $541.67 ($1,083.33/2) in your Bills and Savings each pay. Unless your payment comes out on the same day as your pay cheque goes in, your two extra mortgage payments may not be on the same months as your two extra pay cheques. The extra $83.33 will build up in the account to cover the extra mortgage payments when they happen.

I’m self-employed and don’t get a pay cheque. Can I still budget like this?

You sure can! First off, I hope you have a good bookkeeper who’s been keeping your financial statements up to date. If not, please view my bookkeeping page and I can get you set up and up to date! Keeping record of your self-employment is so important. Not only at tax time, but knowing where you stand at any time helps you plan your business accordingly AND helps you budget your personal finances. For this I’m going with the assumption that you can view last year’s income statement and have this year’s up-to-date. You want to be able to predict your future net income. If business is generally the same as last year and you don’t predict any big changes, I want you to use last year’s net income. Also check your tax return to see if your accountant or bookkeeper made any changes at tax time and to see how much you had to pay in taxes. You are going to use your true net income, after taxes. Divide your annual net (after tax) income by 12 to get your monthly income. Second, you will need to have an additional bank account for your business. You should keep all of your business inflows and outflows in one account. From this account I want you to pay yourself (yes this applies even as a sole proprietor) the monthly net income you calculated. You can pay yourself as often as you want. If you calculated a monthly net income of $2,500, you could pay yourself $1,250 ($2,500/2) on the 1st and 15th of every month. The rest of this budget will be the same as everyone else’s.

I’ve done everything you said, and I can’t balance my budget. My debt load is too high, I can barely afford the minimum payments. My expenses are still higher than my income and each month my debt load gets higher.

If your budget still doesn’t balance because you are unable to increase your income, and you’ve done everything you can to decrease your expenses. You do still have options. If you need to lower your debt load in order to be able to get any relief, your best bet is to seek out professional help such as a Licensed Insolvency Trustee or Credit Counselling. Most places offer a free consultation. At the very least you’ll walk away with more information. Visit a few different places before making a decision. For now, keep what you’ve done (follow it as best as you can) and bookmark this page. Make note of how much you need to decrease your monthly payment by and take that number, along with your already prepared budget, to any appointments. If the person you are meeting with takes no interest in your monthly budget, excuse yourself from the appointment and don’t waste any more time. Be aware of companies that only want to profit from your situation. They should care about helping you and doing what works for you, not them. Once you’ve reduced or eliminated your monthly debt payment, adjust your budget as necessary. 

Tips for Budgeting Success

  • If you do slip up and overspend – all is not lost. Try to learn from your mistake and just keep going. Habits take time to form.
  • Keep track of your progress. Record how much debt you’ve paid off since you started, or how much money you’ve saved. Seeing your success will motivate you to keep going.
  • Make it a team effort. Partners should not hide finances from each other. Whether you share your accounts, or keep things separate, keep them on board. Even better, do it together! Create the budget together and keep each other informed of progress.

The Last Thing You Need to Know about Budgeting

I know that none of this sounds fun, but neither is retiring with no savings and a lot of debt.  Eventually budgeting will feel like it’s second nature to you. Like any new habit, it takes a bit of initial work and planning before the habit takes over. Trust me when I say that you will NEVER regret having a budget. But you certainly might regret NOT having one!

Do you have any money saving or budgeting tips that you’d like to share? Tell me! If you have any questions, please share them in the comments below!

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