How to create a budget
Learn how to put together a budget to help you spend safely
January 20, 2025
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To save money, it’s essential to spend less than you earn. However, it’s very hard to know how much you can safely spend without first putting together a budget.
Below are four steps you can take to create a budget that works for you. You can also download a budget worksheet at the bottom of this page.
1. Estimate your expenses
The first step in setting up your budget is to add up all your expenses. Write all of them down in a spreadsheet so you can see exactly where your money goes.
Be as specific and thorough as you can:
- Estimate expenses where you don’t have the exact numbers - and try hard not to underestimate. It’s better to overestimate your expenses than underestimate them.
- Break down one-off or irregular costs into a monthly expense. So, if you spend $500 per year on car maintenance, add a monthly car maintenance expense for $42.
Tip: More and more services now offer subscriptions rather than one-off payments. These expenses can fly under your radar, as they’re easy to forget about. Make sure you document each of these expenses to understand the monthly cost associated with each. It’s also a good opportunity to review whether or not you are still getting value from the subscription.
Here are 24 common expense categories you can copy and paste into your own spreadsheet:
- Rent / mortgage
- Daycare
- Groceries
- Property tax / strata fees
- Home internet
- Water
- Electricity
- Gas
- Cell phone
- Car insurance
- Life insurance
- Home and contents insurance
- Public Transport / Parking
- Car Maintenance
- Eating out
- Clothing
- Gifts
- Technology
- Home supplies
- Entertainment
- Travel and vacation
- Education
- Sports and gym fees
2. Calculate your income after taxes
Your after-tax income is what’s left over after your employer deducts your taxes and Medicare and Social Security costs. You can find this total on your pay stub.
Tip: You might find that this number changes over the course of the year (for example, it will go up after you max out your Canada Pension Plan contributions), so start with a conservative estimate.
3. Give every dollar a job
One way to give every dollar a job is the 50/30/20 budget. This sets specific portions of your income aside for a few different purposes.
You assign 50 percent of your income to covering your needs, 30 percent to paying for your wants, and 20 percent to saving.
You’ll often hear people say “pay yourself first”, which means putting money away in your savings as soon as income comes in the door. Consider setting up auto-deposits to move money into your savings as soon as you get paid.
4. Keep track of where your money is going
Consider tracking where your money is going according to the level of flexibility you have with your finances. If things are especially tight, you might need to track where every dollar goes. If you are managing to save money every month, you might choose a less detailed approach.
The envelope method
The ‘envelope method’ is one way to keep track of your expenses and restrict yourself if you tend to overspend. You take out as much cash as you think you need for categories like groceries, gas, and entertainment at the beginning of the month, and place each in its own envelope. When each envelope is empty, it’s time to wait until next month to spend more.
You can also apply the envelope method by opening a series of savings accounts and labelling each one as if they are envelopes. The same principle applies: divvy up your funds at the beginning of the month, and pay off your credit card or refill your spending account using funds from each ‘envelope’.
Budget tracking tools
One other way to keep track is to use a tool like You Need a Budget (YNAB). They’ll help you figure out exactly what you’re spending in each category each month. It’s a good idea to rename the expenses in your spreadsheet to the categories
Tip: As you learn more about where your money is going, don’t forget to go back and update your budget every few months or so.