Need help creating your budget? Follow our guide in 3 easy steps and be sure to foresee everything.

According to the 2019 Canadian Financial Capability Survey conducted by the Government of Canada, "about 1 in 6 Canadians (17%) say their expenses exceed their income, and a quarter (27%) say they borrow to buy groceries or pay for daily expenses."

To stay on track with your financial goals, a budget is an indispensable tool. It allows you to track your money inflows and outflows, pinpoint superfluous expenses, and help you set money aside for your projects.

Find out more about the benefits of having a well-crafted budget and the key elements to include in it.

Why have a budget?

Did you know that, according to the Financial Consumer Agency of Canada, nearly 51% of Canadians do not have a budget? The main reasons behind this statistic would be lack of interest or time and the feeling of being overwhelmed by financial management.

Yet, according to the 2019 Canadian Financial Capability Survey, people who have a budget are reportedly less likely to default on their financial obligations, manage their finances more effectively, and are less likely to live beyond their means or have to borrow money to settle expenses. Having a budget could even help you pay off your mortgage faster, as well as your other debts!

Thus, having a monthly budget is useful to:

• Know where your money goes and set spending limits;
• Determine how much money to set aside;
• Allocate part of your income to debt repayment;
• Feel in control of your finances;
• Plan projects that are close to your heart, like a trip or renovations;
• Live within your real financial means;
• Reduce your stress related to money management.

Steps to follow to create your budget

Creating your own monthly budget is much simpler than you might think. Generally, three steps are to be followed.

1- Determine your goals

In this first step, think about specific projects you would like to achieve with your money. Then, determine a date by which you would like to be able to accomplish this goal.

Here are some examples of goals you could include in your budget:

• Go on a trip
• Pay off your credit card balance
• Save to buy a house or condo
• Invest in your child's RESP
• Be able to put a fixed amount each month into your RRSP or TFSA
• Pay off a debt
• Build an emergency fund (to cover expenses in case of disability or for unforeseen renovations)

The important thing is to choose goals that you will be able to achieve and that are close to your heart to stay motivated.

2- Calculate your income and expenses

The second step is undoubtedly the longest. It involves taking inventory of all your money inflows and all your fixed expenses. To help you, keep your bills for a month and consult your transaction statement available in your online bank account.

Once this list is finished, it will follow you for many years. See this step as an investment of time towards your financial well-being!

3- Adjust your budget each month

Finally, at the end of the month, do the following calculation: YOUR MONTHLY INCOME – YOUR MONTHLY EXPENSES.

The amount resulting from this subtraction is what you are able to set aside each month for your projects. If this amount is too small, check if a category of expenses could be lower next month, like restaurant meals or buying a coffee at a roastery.

Elements to include in your budget (The list is not exhaustive)

Here are, by category, elements that should be in your budget in the monthly expenses section:

Housing

• Rent, mortgage payment and condo fees, if applicable
• Municipal and school taxes
• Water taxes
• Electricity
• Heating (oil, wood)
• Alarm system
• Landscaping and maintenance
• Home or tenant insurance
• Mortgage loan insurance

Personal Insurance (if not deducted directly from your pay)

• Life insurance
• Disability insurance
• Critical illness insurance

Transport

• Car payment (loan or lease)
• Public transport (taxis, bus, metro, etc.)
• Expenses related to your car (gas, maintenance, repair, tires)
• Car or recreational vehicle insurance
• Parking
• Registration and driver's license
• Toll bridge

Telecommunications

• Landline
• Cell phone
• Cable or satellite television
• Internet
• Hobbies and education

Tuition Fees

• Purchase of school supplies
• Sports and hobbies (gym, shows, classes, etc.)
• Subscriptions (Netflix, Spotify, magazines, etc.)
• Daycare or childcare fees
• Lotteries
• Travel

Food

• Groceries
• Alcohol
• Restaurants

Health

• Healthcare
• Dental care
• Vision care
• Personal care and pharmacy (hygiene products, medication, etc.)

Debt Repayment

• Credit card 1
• Credit card 2
• Line of credit
• Personal loan
• Student loan
• RRSP loan
• RESP loan
• Investment loan
• Home Buyers' Plan (HBP)
• Appliance debts
• Furniture debts

Other Expenses

• Clothing
• Hairdressing
• Aesthetics
• Smoking-related products
• Alimony
• Pets (food, vet, grooming)
• Gifts

Here are elements that should be in your budget in the monthly savings section:

• Emergency fund
• Registered investments (RRSP)
• Non-registered investments (GIC or others)
• TFSA
• RESP

Here are, by category, elements that should be in your budget in the monthly income section:

• Net remuneration (with bonuses, commissions and tips)
• Scholarships
• Net rental income
• Pension or other net benefits
• Child tax benefit and family allowance in Quebec
• Alimony
• Social assistance
• Annuities
• Registered Retirement Income Fund (RRIF) income
• Life Income Fund (LIF) income
• Registered Pension Plan income
• Quebec Pension Plan (QPP) or Canada Pension Plan (CPP) retirement pension
• Old Age Security (OAS) pension and guaranteed income supplement
• Investments
• Investment income

A few tips

In closing, here are a few tips to keep in mind so your budget is optimal and follows your situation over the years.

Provide a buffer: it is often safer to round your expenses up to ensure you can cover contingencies that might arise, like an appliance breaking down or water damage.

Identify repetitive and superfluous expenses: by tracking your budget monthly, identify expenses that come up often and could be reduced, the classic example being the nice little latte prepared by your favorite barista! Think about it, three $5 coffees a week represent $780 at the end of the year.

Anticipate expenses that recur every year at fixed times: your registrations, snow removal service, and municipal taxes are expenses you can foresee in your budget to be certain to have the amount in hand when paying.

Adjust your budget when a change occurs: when your salary changes or you experience a new life event (like the arrival of a baby or buying a property), take time to adjust your budget forecasts to avoid bad surprises or creating financial stress.

Our last tip and not the least: do not hesitate to call upon the expertise of a financial security advisor in developing your budget. This expert will guide you to make good choices to allow you to maximize the money you work so hard for.