10 Tips to Create a Realistic Budget and Stick to It

With a mild recession projected for 2023, now is the time to take control of your financial health. Income growth is never inflation-proof. It may seem like everything we need or want in life is getting more and more expensive, and having a personal budget to track money coming in and out can help you stay on top of your finances and avoid surprises.

Why budgeting is important

There’s a reason why the standard of living is more expensive than ever—the inflation rate. Canada saw an 8.1% increase year-over-year in June 2022, after a 7.7% bump in May 2022. You may be feeling helpless as costs rise, but there is one thing you can do to regain your power in this situation. You can create a personal budget!

Budgeting gives people control over their money and their lives. By having a plan in place, you can avoid penny-pinching in stressful times, and feel confident that you can handle the expenses of whatever life throws at you.   

Creating a budget can help you dial in on your short- and long-term financial goals. If you have a short-term desire to set an emergency fund, pay down debt, or put together a vacation fund, you can set parameters within your budget to get you there. If you’re thinking more long-term, like retirement or paying for your children’s education, you can start making moves now as you build a budget.

How you should budget your income

When determining how to budget your income, you first need to take a look at the different sources of your personal income. You might have money coming from a few different places! You could have salaried income (the fixed amount of pay you receive for employment), investments (real estate, stocks, etc.), a side hustle (tutoring, freelancing, babysitting, ridesharing, etc.), or government tax benefits (Canada child benefit, disability tax credit, Canada workers benefits, etc.). You must consider all of those streams of income when diving into creating a budget.

It’s important to note that some personal income streams will have deductions. You will need to consider taxes on revenue items like your side hustle to determine the actual amount of money you’re taking in. 

How you can categorize your expenses

After you’ve figured out how much money you’re bringing in, it’s time to think about expenses. There are two personal expense categories: regular and irregular.

First, consider the regular, essential items like rent, mortgage, groceries, utility bills, childcare, vehicle payments, insurance, and any debt repayments. Then, add in the irregular items like clothing and personal care items, children’s activities, eating out, or entertainment.

These might be monthly expenses, or they could be annual. For example, if you pay your property tax annually, it’s important to note that versus if you have a monthly bill. 

Once you’ve established your personal expense sheet, both regular and irregular, it’s time to dive into your receipts, bank statements, and credit card statements to get a sense of the average monthly expense for each. Not every month will be the same, so do your best to determine an average or refer back to that same month in the previous year for a more specific estimate. For example, in the winter, expenses like utility bills will likely go up, so when preparing a budget in the winter, you’ll want to look at that bill instead of the one you received in the summer. 

We recommend tracking your expenses throughout the month to know if you’re on track with the projections on your monthly expense list. There are many online tools to try, which makes it easier to update on the go! We like Mint, YNAB (You Need A Budget), and EveryDollar. These are all mobile apps, so you can log your expenses whenever or wherever it works best for you.

How to budget your money

If you’re thinking, “This is hard, because everything is so inconsistent!”, you’re right. Due to ongoing uncertainty, budget planning can be tricky, but it’s still an effective tool. It’s better to have an idea of what is happening with your money than not having a sense of money coming and going out. 

To get you started, there are many free budgeting tools available. If you already use Microsoft Office, it might be easiest to try their Excel template. Mint (like the app mentioned above) also has some great templates. In these spreadsheets, you can track and report your monthly income and expenses, to keep an eye on your progress and know if you need to make adjustments.

You might want to try a couple of different budgeting methods before settling on what will work best for you. Here are some options for budgeting your money.

50/30/20 budget

This budgeting method focuses on needs, wants, and savings. 50% of your spending goes to those crucial items on your expense list, 30% goes to the things that aren’t real needs but are important to your life. These are likely in the irregular category of your monthly expenses. The last 20% of your spending is dedicated to saving or debt repayment if you’re currently following a repayment strategy.

Zero-based budget

This method is the most simple, but also the one with the least room for error. It tends to work best for those who have a set amount of income each month. The main idea here is income minus expenses equals zero. With this approach, you will have to get specific with your expense sheet.

Pay-yourself-first method

If you struggle with saving, this could be the method for you. This strategy prioritizes savings and debt repayment. Each month, you will set aside a certain amount for debt payments and your personal saving goals, and then use the rest to pay both your regular and irregular bills. 

12 tips to make your money work for you

Here are some of the top budgeting ideas to consider to keep your approach working for you.

Prioritize your recurring minimum payments

Make sure you cross those payments off your list each month! Staying consistent with those small payments can make a big difference.

Build your emergency fund 

Surprises happen and can disrupt your budget. If you set aside a bit each month, you can build a fund to access when things don’t go according to plan. An emergency fund should have at least $500 in it, to cover those unforeseen expenses.

Invest with smart online trading apps 

Online financial tools like Wealthsimple can help you automate your investments, and expand your wealth-building sources.

Cut down non-essential spending 

Take a look at the list of irregular expenses and assess if they’re all needed. Can you trim the amount you spend on those? If so, you’ll have extra funds to save or invest.

Look up recurring deals to shop for groceries and other supplies 

Check out the fliers at your favourite grocery store or try meal planning. By sketching out your menu for the week, you may be able to cut down on your grocery budget.

Limit your credit utilization to 35% of the allowed limit 

The less you use your credit card, the better. If you can keep your amount owing pretty minimal, your payments will have less of an impact on your monthly budget.

Build your retirement fund 

It’s never a bad idea to think long-term. Just like putting money away for an emergency fund, if you can set aside even a little bit each month for retirement, your future self will thank you.

Negotiate a fair pay raise to make what you’re worth 

Boosting your salaried income is a great way to ease the pressure on your budget. Before you ask for a raise, be sure to do some research about what is reasonable for your industry, experience, and position.

Focus on paying off your debt 

If debt is following you around, you may need to focus on a debt repayment strategy. If you can eliminate those payments, you’ll breathe a little easier each month.

Live below your means

A top piece of budgeting advice is to be realistic. If you can’t afford extravagance, avoid it. Never spend more than you have.

Update your budget with life changes 

Kids, other dependents, a change in income streams, a new home, and many other factors can impact your budget. Remember to update the info as you need.

Reward yourself when you’ve hit a milestone on your goals 

This is one of the best benefits of budgeting. If you’ve hit a certain amount in your emergency fund, paid off a particularly stressful debt, or reached a milestone in your retirement fund, be sure to celebrate! Following a budget can be hard work. You deserve some recognition!

We’re here to support you

If you need help getting started, our team can help! Contact us today to book an appointment.