{"id":364,"date":"2021-06-29T20:51:49","date_gmt":"2021-06-29T20:51:49","guid":{"rendered":"https:\/\/www.nerdwallet.com\/ca\/?page_id=364"},"modified":"2022-04-20T09:06:21","modified_gmt":"2022-04-20T16:06:21","slug":"how-to-budget","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/ca\/personal-finance\/how-to-budget","title":{"rendered":"Budgeting 101: How to Budget Your Money"},"content":{"rendered":"\n

Are you someone who struggles to save money? Or perhaps you\u2019re constantly wondering where all your cash went? If this sounds like you, then it might be time to create a budget. In this guide, you\u2019ll learn everything you need to know about how to budget, including a step-by-step process and tools to make budgeting easier.<\/p>\n\n

What is a budget?<\/h2>\n\n

Simply put, a budget is an estimate of your expenses versus your revenue during a specific time period. It\u2019s essentially a spending plan that allows you to better strategize your spending and saving habits<\/a> for both short- and long-term goals.<\/p>\n\n

How does a budget work?<\/h2>\n\n

Typically, people will create monthly budgets based on their cash flow<\/a> that compare their income to the total cost of their expenses, including rent, utility bills, debt payments, transit passes, groceries, entertainment and more. A budget is a tool that helps you figure out where your money is going, how much you can afford to spend, where you can cut costs and how to work towards your financial goals, like achieving financial independence<\/a>.<\/p>\n\n

Why do I need a budget?<\/h2>\n\n

Creating a budget has multiple benefits. It can help you keep your spending in check to help you make progress towards goals like getting out of debt<\/a> or buying a house. It can also give you an idea of what you can afford to spend on things like rent, a mortgage or car payments to ensure you don\u2019t take on too much debt or cause yourself financial stress. Even if you don\u2019t have any specific savings goals right now, it\u2019s a good idea to have a budget so you know exactly where your money is going.<\/p>\n\n

Will a budget help me save money?<\/h2>\n\n

Absolutely. Creating a budget is a key aspect of learning how to save more money. By breaking down your expenses and really digging into where your hard-earned cash is going, you can better prioritize your spending. A budget makes it easier to compare your expenses and cut back if needed. It also helps you plan to meet financial goals like creating an emergency fund<\/a>, paying off debt, buying a home or a car, or even paying for a wedding or a dream vacation.<\/p>\n\n

How to make a budget in six steps<\/h2>\n\n

Ready to make your first budget? Here\u2019s a step-by-step breakdown of what to do.<\/p>\n\n

  1. Figure out your net income.<\/strong> This is the amount of money you actually bring home every month after taxes and costs like EI<\/a> and CPP are deducted.<\/li>
  2. List your fixed expenses<\/strong>. These are your regular living expenses that recur with the same amount every month, like rent, utility bills, and car loan or mortgage payments.<\/li>
  3. List your variable expenses<\/strong>. These are expenses that fluctuate more, like groceries, takeout and gas. If you use your debit or credit card<\/a> to pay these costs, look at your statements to get an idea of the numbers. However, if you tend to use cash, start tracking your spending using the notes app on your phone or a budgeting app (more on these later).<\/li>
  4. Figure out your goals.<\/strong> Think about both short-term and long-term goals, from paying off a credit card to buying a house<\/a>.<\/li>
  5. Add up your fixed and variable expenses, and compare the total to your net income.<\/strong> Which amount is higher? If the expenses are higher, you\u2019ll need to adjust your spending habits ASAP to avoid digging yourself into debt. If your income is higher, that\u2019s a good start. But is the money you have leftover after paying your expenses enough to help you reach your goals? Think carefully about your spending habits and how you could change them to help you meet your goals sooner. You might also consider ways to increase your income or net worth<\/a>.<\/li>
  6. Review your budget regularly<\/strong>. Things change over time: you might get a raise, stop paying for a streaming service or commit to buying less takeout. Take the time every few months to check in on your budget and make sure that you\u2019re still on track to reach your goals.<\/li><\/ol>\n\n

    Types of budgets<\/h2>\n\n

    The basics of creating a budget, as listed above, are pretty simple. However, you might find it easier to stick to a specific budgeting strategy based on your spending habits, lifestyle and relationship with money. Pick the plan that sounds like it\u2019s the best match for you.<\/p>\n\n

    50-30-20 budget<\/h3>\n\n

    The 50-30-20 approach is a very popular budgeting strategy. This method is based on the idea that you can separate your monthly income into three categories:<\/p>\n\n