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How to make a budget?

Creating a budget can sometime seem like a daunting task. Now that it is the beginning of a new year it’s a great time to reflect on the previous year and plan for the new year.


Why do you want to have a budget? People set budgets for so many reasons. Some of the reasons are to know where their money is going every month, to plan for retirement in the future, to teach their kids about money, or even just for fun. Find a reason that will motivate you the most to stick to your budget. A budget can also be short-term, 1 year, or long-term, 10 years. If you don’t think you can stick to a long-term budget that is ok. You can even break down a budget to per month, week, and even day. Talking to someone about your goals for your budget will help you stay on track. Connect with a family member, a trusted friend or advisor, and have them hold you accountable for your budget.


Identify your income and expenses from the past year. A good first place to start is your bank statements. If you have a chequing, savings, investing, retirement, or credit card, your bank or other financial institution will have monthly account statements that tell you what money came in and what money went out of each account. If you filed your taxes last year, having your Notice of Assessment, NOA, from the CRA will help you know how much money was earned from work and how much you may have spent on other things such as donations, medical, and school. Having any tax documents from the prior year will help you budget for the coming year. Businesses also get a NOA from the CRA. If you have loans or mortgages you can request a statement that tells you how long you have left to pay off the debt and the amount.


Now it’s time to separate your income from your expenses. Understanding where your money is coming from will help you know if there is a way you can increase your intake.

  1. Add up all your income If you work at a company you will receive a T4 at the end of each year for your taxes. If you run your own business gather together all the invoices and receipts of income for your work. Add up all the money you make in a month and year. This will let you know how much money you have to work with each year.

  2. List your monthly expenses and divide into fixed, variable, needs, and wants The money we spend each day can be broken down into fixed, variable, needs, and wants. Fixed expenses would be something that doesn’t change at all or often with each month or payment. These would be things such as loan payments, rental payment, subscriptions, etc. Variable expense are those costs that change over time, such as groceries, gas, or utilities. To be able to budget more effectively we need to divide those expense into our needs and our wants. We need to pay for loans and rent, but we want to eat out at a nice restaurant. Once we have figured out our wants we can start cutting down on those expenses as needed.

  3. Subtract your expense form your total income Once we have laid out all our income and all our expenses for the month or year we can figure out how much money we have left over. Now is a good time to double check everything to make sure we have the most accurate numbers just so as our budget stays up to date.


There are many ways to lay out your budget. You can have it written out on a piece of paper or on your computer in an excel sheet. There is also the envelope method, where you put in an envelope how much money you will use. With modern technology there is online software as well as phone apps to help you create and stay up to date with your budget. Pick a method that works best for you. Don’t be afraid to use more than one method, or to try each of them to see what works best.


Now you have picked the style of budget you want you need to lay it all out. Enter in all the income you think you will receive for the month or year. Make sure you label where it is coming from and about what time you expect it will come in. Label every expense you know you will have for the month. Have each loan, credit card payment, fast food run, and tv subscription have their own line.

It is recommended you save a portion of your income each month for the future. If you don’t already have a savings or retirement account open, get one opened and have automatic deposit into those accounts each month. There are also tax free savings account as well as education accounts for kids. It is wise to start now to save for the future.

Once you have laid out your budget review it to see if there are any expense you can cut back on. Maybe to cut down on the need to eat out you and your family can start making meals and freezing them for the week. Look for deals and discounts for activities you and your family love doing together. When it comes to needing to pay off loans, pay off the smallest loan first or the loan with the largest interest rate. Also keep in mind those seasonal expenses such as birthdays, vacations, and holidays.


Track your progress each week or each month. Setting notifications on your phone and computer will help you remember to look at your budget and adjust it when needed. Have a friend or family hold you accountable for your budget. Be willing to adjust and change your budget if something changes in your life. A budget is not set in stone and can be changed when needed.


You make just make a budget for the short-term, a week, month, or year, but it's also good to have a flexible budget for the long-term, 5 years, or 10 years. When creating a budget for the long term the income and expenses can be more summarized and don't need to be as detailed. Knowing your goal of saving for the future or paying off debts will help you stay on track with your budget.

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