How to Make a Budget You’ll Actually Use

A budget is a plan that compares your income to your expenses over a set period — usually a month — to help you spend and save intentionally and work toward your financial goals.

How budgets work, in general

The most common type of budget is one that compares your monthly income to the total cost of your monthly expenses, like rent, utility bills, debt payments, transit passes, groceries, entertainment and more.

By updating your budget each time you get paid, and recording each expense, you can see where your money is going, how much you have to spend or save, and where you might be able to cut costs.

You can build your budget in whatever way best fits your goals — there’s no one right method.

Will a budget help me save money?

Absolutely. Creating a budget is often a key first step toward saving money more efficiently.

By breaking down your expenses and really digging into where your cash is going, you can spot opportunities to direct more money to your savings account.

A budget can also help you plan for financial goals in advance, like creating an emergency fund, paying off debt, buying a home or a car, or even paying for a wedding or a dream vacation.

Getting ready to make a budget

Ready to make a budget? Here’s how to get organized.

Step 1: Figure out your net income

Your net income is the total amount of money you bring home every month, after taxes and costs like EI and CPP, or any RRSP contributions, are deducted.

Step 2: List your recurring, fixed expenses

These are expected bills that cost same amount every month, like:

Step 3: List your variable expenses.

These are expenses that may change in cost over time. Do your best to estimate these, using past months as a baseline.

Step 4: Add up your fixed and variable expenses, and compare the total to your income.

Which amount is higher?

If your expenses exceed your income, it might explain the financial stress that you’re feeling or why it has felt hard to build your savings.

If your income is higher than expenses, it might mean there’s an opportunity to save more, or that you really can afford a large purchase you’ve been putting off.

Consider your income-to-expense ratio with curiosity — it’s just data that will help you learn more about how money is flowing into and out of your life. Try to avoid shaming yourself for past money mistakes, or things that might be outside of your control. 

Step 5: Decide what's essential in your life

One thing that's key to any budget is a clear definition of essential and non-essential expenses.

You might define these terms differently than your relative or friend, which is fine. They're somewhat subjective.

What's important that you're able to classify each of your expenses as one or the other.

Essential expenses are typically the things you genuinely need to live and work. They are costs that keep a roof over your head, food on the table, and the lights on. These typically include housing, utilities, groceries, transportation, insurance, and minimum debt payments.

Non-essential expenses, on the other hand, are usually things that make life enjoyable but aren’t strictly required — like dining out, new clothes, travel, subscription services or hobbies. Non-essentials are the flexible part of your budget, and often where you can make cuts when money gets tight.

Step 6: Write down your financial goals.

Maybe you'd like to:

Your goals will shape the way you set up and use your budget, so it’s good to name them, even if they feel unattainable right now. If you have a spouse or partner, make sure you include them in any conversations about financial goals. 

» Now that you’ve gathered up some raw numbers and thought about what you want your money to accomplish, it’s time to move on to the next step of making a budget: Choosing a budgeting system.

Types of budgets

Several well known budgeting frameworks are listed below. Pick the plan that sounds like it’s the best match for you. And remember, you can always change your approach if the system you choose doesn't turn out to be a good fit.

Budgeting tools that can make your life eaiser

We did some research and asked some financial planning experts about the tools they use to make a budget. Here’s what’s working for some folks.

Envelopes

Whenever you’re paid, cash your check, and then put the cash into envelopes that represent different expenses (like rent) or spending categories (like dining out).

To buy something, you take money from the appropriate envelope. When the envelope is empty, you’ll know you’ve hit the spending limit for that month.

Spreadsheets

A spreadsheet is a slightly less analog version of the envelope system. Create columns and rows that help you track your spending and saving over time.

If you’re not comfortable building your own budget using tools like Google Sheets or Microsoft Excel, search “envelope system spreadsheet” or “envelope budget spreadsheet” online and you’ll find many free templates that you can experiment with.

Automated transfers

Instead of commingling money in a single chequing or savings account, and using a spreadsheet to see how your total balance is sliced into various spending categories, Steve Bridge, a B.C.-based financial planner, has multiple accounts.

Whenever he’s paid, Bridge automatically directs a set amount of money to each account: one for vacation, one for car expenses, one for home repairs, etc. Daily expenses, like groceries, gas and eating out are paid for by debit card out of a dedicated chequing account. Instead of pulling up a spreadsheet to see how much he has set aside for certain needs and goals, he can just look at the balance in each account.

Regardless of how you execute it, the key to each of these budgeting methods is that you’re only earmarking and spending money you can access. “This is what getting ahead financially actually looks like,” Bridge says. “It’s saving ahead for things. And it puts the power of control in your hands. It gives every dollar coming in a job.”

Budgeting apps

If you prefer an app, Russ Dyck, a certified financial planner in Alberta, recommends test driving those that have a free trial period before committing — and possibly paying a subscription fee. “I don’t think there’s two that are doing it the same,” he says.

You Need A Budget, also called YNAB, is based on the envelope system and has been a popular option for years.

Chris Scheele, a qualified associate financial planner in Alberta, says his clients use a variety of apps and spreadsheets, uses the free version of an app called EveryDollar.

Goodbudget, Spendee and Neontra are other budgeting apps to consider.