Creating a personal budget allows you to understand your spending habits better and adjust them if necessary. In addition to structuring your finances, a good budget will help you prepare for the unexpected and save for your goals. Here’s how to do it in six steps.
1. Where do I start to make my budget?
The first thing to do is find the budget tool that suits you. There are online calculators, such as the one from the federal government ( link to external site) or the National Bank. This makes your work easier because almost all the expense items are already planned, a nd the calculation is done automatically. You can also use a spreadsheet to create an annual budget grid. Some mobile apps are designed to provide highly accurate budget tracking by automatically syncing with your bank account. They allow you to create a personalized budget based on your transaction history.
Of course, your advisor is always there to guide you through this process. They can explain concepts you have difficulty grasping or suggest useful documents and resources.
2. How do I properly compile all my income into my budget?
Enter your monthly net income—your salary after tax deductions. This is the actual amount you receive in your bank account. Normally, this amount should not change. To calculate it accurately, rely on your pay stub and your most recent tax statement.
You may have other sources of income to include, such as
- Tips
- Commissions
- Investment income
- Alimony
- Benefits for children
- Annuities
- Bonuses, etc
These amounts appear in the “deposits” column of your bank statement, except for cash tips. If you receive such income, provide an additional box to indicate it.
3. What expenses should I add to my personal budget?
Write down all your expenses. A good personal budget includes three distinct categories of expenses.
Fixed expenses are those that occur every month and vary little.
They include:
- Rent or mortgage
- Electricity
- Telecommunications services
- Mobile phone
Transportation (car, gas, monthly public transportation passes)
- Debt repayment
- Drugs
- Life and critical illness insurance
- Disability and overhead insurance
Variable expenses are those that can vary from month to month, such as:
- Grocery store
- Outings and restaurants
- Leisure and subscriptions
- Shopping
- Vacation
Health and beauty care (pharmacy, hairdresser, optometrist, dentist, and other medical expenses)
Unusual or annual expenses are often underestimated. They should still be budgeted for. To estimate the total, rely on your bills from the previous year. Consider, for example:
- Registration fees
- Annual public transport tickets
- Annual contribution to a professional order
- Car or appliance repair costs
Some pro tips
To calculate your spending: Your credit card statement can be a valuable source of information. You’ll get a better idea of what’s happening with your money. For an even more detailed picture: keep your receipts. This way, you can split the costs of food, school supplies, or medications purchased at one or more stores. Don’t forget about small cash purchases. These recurring expenses have a significant impact on your budget over time. That $5 paid for a large latte means hundreds of dollars less in your pocket at the end of the year.
4. How much to allocate to savings and emergency fund?
You should allocate between 10% and 20% of your budget to savings. It all depends on your financial situation and goals. To create a good personal budget that works: pay yourself first . This means that before allocating money to other expenses, dedicate an adequate amount to your savings. This is a way to give yourself greater peace of mind and help you achieve your goals, such as buying a second home or installing an in-ground pool. If something unexpected happens—like losing your job—both your income and your budget will be disrupted. That’s why it’s important to build an emergency fund. You should set aside an amount that represents three to six months of expenses, not income.
5. How do I analyze my personal budget?
Subtract your total fixed and variable expenses from your total income. This will give you your financial result. If you are in a deficit situation – the result is negative – see which consumption item you can cut. Are you consistent in your financial management? Do you find yourself in deficit at certain key times of the year, such as the holidays, for example?e This exercise will allow you to understand your behaviors in relation to money, and to rectify them if necessary.
6. How can I properly monitor my budget?
Develop the habit of updating your personal budget as regularly as possible, whether using your mobile app or a spreadsheet. Remember to record your expenses regularly so that you don’t see it as a month-end chore. Compare your initial budget with your actual expenses. Ift a significant event changes your finances and budget configuration, schedule an appointment with personal finance specialists as soon as possible.
Creating a renovation budget could save you thousands of dollars
First, determine which renovations could bring you a better return. For example, the kitchen. Then, look for ways to save on everything you can control. Choose less expensive materials or try to do some of the work yourself.
A marriage can quickly become a debt that must be paid off for years
To avoid unpleasant surprises, it is best to start planning 9 to 12 months before the big day and make careful choices, particularly about the following elements:
- Bar services
- Music
- Hairdressing
- Dress
- Flowers
- Meal
- Photographer
Because there are always unforeseen events, plan for a “cushion” representing 5 to 10% of the total budget.
I’m expecting a child.
The arrival of a child can eat up to 20% of the family budget. Needless to say, the birth of a baby requires planning. Think about:
- The furniture
- The decor
- Maternity clothes
Consider opening a Registered Education Savings Plan (RESP) for your children’s future education. This plan offers several tax benefits and grants.
I want to go on vacation.
So, you’ve got your feet in the sand for your vacation. Even if you’ve saved up for this long-awaited moment, you may have forgotten to include non-essential expenses in your budget once you arrive at your destination.
Be sure to add additional amounts for restaurant meals and souvenir purchases before you leave.e
I am studying
If you’re a student, you likely have limited financial resources. Maintaining a student budget is essential to cover all your education-related expenses. If your income is insufficient, you may want to consider private or government loan and scholarship programs, or a student line of credit from your financial institution. A personal budget is a powerful tool to help you save money, prepare for unexpected events, and achieve your goals. It’s also an opportunity to adjust if you find yourself spending a little more than you should.
