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Tips for Building a Budget

Creating a budget and sticking to it is a vital part of managing your personal finances. Without a budget, it’s very tough to pay all your bills, meet all your financial obligations, and save for the future.

However, each person’s financial situation is different. Therefore, a budget that works for one person won’t necessarily be the right one for someone else. Everyone has their own financial situation, their own goals, and their own unique lifestyle. When you’re putting together your budget, you’ll need to make sure that you create one that works for you.

Here are some tips.

Know What You Earn

Many of us aren’t completely sure how much we earn. Our paycheques come in through direct deposit every two weeks or so, and we spend what we have. But it’s important to know the exact amounts. Look at your last couple of months of paycheques. Are they consistent? When do you get paid and how much? Are some weeks different from others? Figure out why.

It sounds basic, but knowing how much you have coming in is a crucial part of building a budget. Your income is the foundation of your financial plan. Once you know the numbers, figure out how much you make in an average month. Don’t include any potential bonuses, and you can’t count on these to be there for you.

Know Your Expenses

Once you’ve figured out what you’re actually making, you’ll want to make sure that you know what you’re spending. Spending can be broken down into roughly four categories:

  • Fixed Costs
    • These are costs that don’t change much from month-to-month. Think of your mortgage payment or rent. No matter what you do, this cost doesn’t really vary a great deal. The same is true for insurance, utility costs, subscriptions, etc.
    • Remember that some of your fixed costs won’t be monthly. For example, home insurance or membership fees to certain organizations don’t have a monthly bill, but you do pay them biannually or annually. Make sure to include these costs. To make it easier, divide them up into monthly expenses. For example, if you pay a $200 membership fee once a year, this works out to $16.67 each month. If you put this much aside every month, you won’t be hit with a sudden $200 fee that you didn’t budget for.
  • Variable Costs
    • These are expenses that can fluctuate from month-to-month. For example, your grocery budget can change depending on how much you eat (and what you eat) or your transportation costs will vary depending on how much you drive, how often you take the bus, etc.
  • Debt Repayment
    • It’s important to include debt payments when you’re making a budget. Write down how much you pay towards your credit card, car loan, student debt, etc. each month.
  • Other
    • This category includes retirement savings, savings for other goals (such as a vacation fund), emergency savings, etc. This is an important category to have.

Add it Up

Add up everything that you spend each month. To figure out how much you spend on variable expenses, it’s often a good idea to use an average of what you’ve spent over the past few months. To determine these numbers, you’ll need to track your spending for a while.

For example, if your monthly grocery bills were $425, $500, $375, and $335 for the last four months, add those numbers up and divide by four. Your average grocery spending over four months was $408.75. Use this amount as your monthly grocery budget. It’s often better to round up to be safe, so you might want to use $410 instead.

Once you know how much you spend each month, compare it to how much you earn. Are you able to afford all of your expenses on your current income? If so, good for you! If not, you’ll need to make some adjustments.


Even if your budget balances, it’s still a good idea to review your monthly expenses and make adjustments or cuts accordingly. For example, when you review the numbers, you might find that you are spending more than you expected in a certain category. If you find that you’re spending a lot on something that you don’t really value all that much (for example, if you notice a lot of money going towards subscriptions you rarely use or lunches that you don’t particularly enjoy) then make changes.

Remember, a budget is unique to you. One person may get a lot of enjoyment and satisfaction out of a gym membership, for example, while another person might be better off spending that money on a new bike. How you spend your money will depend on your priorities and your personal values.

If you have money “left over” in your budget, consider increasing how much you spend on debt repayment to pay back your debts faster, or increase how much you are saving for emergencies or retirement.

If you find that you’re not able to afford all of your costs on your current salary, you’ll need to look for places to save. Could you reduce your grocery budget by shopping sales or spend less on transportation by cycling instead of taking the bus? Look everywhere for cuts and reduce your spending wherever you can. If, after you’ve made your cuts, you’re still unable to balance your budget, you may want to speak with a licensed financial professional for guidance.