Personal Budgeting

Learn how to make a budget as you turn a new leaf on your finances.

Budgeting is a vital skill you need to master if you want to achieve long-term financial stability. A good personal budget is essential for:

  • Managing your money day-to-day
  • Staying ahead of bills
  • Achieving your goals
  • Managing debt
pen, calculator and budget


As you start working with New Leaf, a key part of the credit counselling process will be to help you make a budget. Your credit counsellor will help you detail your income and expenses, so you can see where your money is going. You’ll also be able to see if you’re in the red and need to cut back. This will help ensure you can afford the monthly debt payments you need to make to become debt-free.

However, as you move forward, you’ll need to understand how budgeting works, so you can maintain a budget that grows with your financial needs. This guide will help you learn how to budget successfully, even in the face of financial challenges.

What is budgeting?

Personal budgeting refers to the process of managing your money day-to-day. A good budget balances your expenses with your income and builds in savings to help you achieve your financial goals. Budgeting ensures you can pay bills on time, avoid bank overdrafts, and cover all your monthly expenses without relying on credit cards.

How to make a budget

Step one: Total up your monthly income

To start a budget, you need to accurately evaluate how much money you make per month. Monthly income can come from a range of sources, depending on your financial situation:

  • Paycheques
  • Income from a side business or freelance work
  • Spousal or child support
  • RRSP or pension distributions
  • Veterans benefits
  • Tax refunds
  • Public assistance

TIP: Budget for the income you receive, and not the income you expect.

Step 2: Assess your expenses

Next, you need to determine what you spend each month. Monthly expenses fall into three categories:

Fixed expenses

These are necessary expenses with a set monthly cost. This includes:

  • Mortgage or rent payments
  • Insurance payments
  • Car payments
  • Student loans
  • Spousal or child support payments

As you work to pay off your debt, the debt management program payments you set with your credit counsellor will also be a fixed expense.

TIP: Make savings a fixed expense in your budget. It should be a set payment that you pay yourself every month.

Flexible expenses

These are necessary expenses that have a varying cost from month-to-month. This includes many of your bills, as well as necessities you should cover with cash or debit.

  • Utility bills
  • Cell phone bills
  • Groceries
  • Gas and parking
  • Clothing
  • School/work supplies
  • Pet care


  • For bills that may change monthly, you can identify your highest annual bill and set that amount as the cost of that expense.
  • For other expenses like groceries, you should take a three-month average and set that amount as a spending target

Discretionary expenses

These are the “wants” in your budget – all the nice-to-have expenses that aren’t necessities. This may include:

  • Dining out
  • Recreation
  • Entertainment
  • Subscriptions for streaming services, magazines and newspapers
  • Tithes and donations
  • Hobbies
  • Barber, salon and beauty costs

TIP: When you need to cut back to balance your budget, this should be the first place you start.

Step 3: Balance your expenses against your income

The next step is to total up all your monthly expenses and then compare it to your income. In a perfect world, you should only spend 75-80 percent of what you earn. The other 20-25 percent is known as free cash flow. This is money you can use to cover unexpected expenses and emergencies that inevitably come up each month.

Free cash flow is separate from savings. Don’t leave savings to be whatever money you have left at the end of the month! Once you see how much of your monthly income that you spend, you can set a target monthly savings amount. Ideally, you want to save about 5-10 percent of your take-home income each month. This amount becomes a fixed cost you pay yourself each month.

Maintaining free cash flow in your budget in addition to savings will help you stop living paycheque-to-paycheque.

What to do if you spend more than you earn

If you see that you’re in the red – that your expenses outweigh your income – then you will need to find ways to cut back. By nature, fixed expenses can’t be changed. However, flexible expenses can be trimmed back, and discretionary expenses can be cut or reduced.

These tips can help balance your budget:

  • Cut back on dining out and cook more at home instead; take lunch to work.
  • Limit entertainment streaming services to one service
  • Cut extra or premium cable channels
  • Review your electric and phone bills to find services you don’t need
  • Reduce the number of donations you make to charity each month
  • Limit the number of times you go out each month and plan fun nights at home
  • Cancel home services, like house cleaning or landscaping, that you can do yourself
  • Limit trips to the salon and don’t overpay for personal care products
  • Start couponing to cut your grocery budget back
  • Comparison shop, wait for sales and shop strategically, even for necessary purchases like clothing and pet supplies.

Step 4: Determine the best way to manage revolving credit

While you’re enrolled in a debt management plan, you shouldn’t need to worry about how to manage revolving debt payments, such as credit cards. However, once you graduate from the program, you will need to learn how to manage this type of debt, if you decide to use revolving credit.

Loans are easier to manage because they have installment payments, so they naturally fall under your fixed expenses. However, with credit cards and other revolving credit lines, the monthly payments change based on how much you owe.

The best way to manage credit card debt is to pay off any charges you make in full each billing cycle. This usually makes credit card debt payments a flexible expense, since you’ll rarely charge the same amount each month.

When credit card debt can become a fixed expense

Credit card debt payments should become a fixed expense if you begin to carry balances over from month to month. If you charge more than you can afford to pay back in a month and especially if you have balances to pay off on multiple cards, you need to implement a debt reduction plan.

  1. Determine how much you can afford to put towards your credit card debt payments; you want to pay as much as possible, so you can get out of debt quickly.
  2. Identify which balance you want to pay off first; you usually want to start with the balance that has the highest APR.
  3. Make the minimum payments on the other balances, then use the rest of the cash you have allocated to make the largest payment possible on that debt.
  4. Continue to use that set amount of cash to pay off your balances until they are all paid off again.

Step 5: Revisit your budget periodically to make sure you’re on track

Once you have your budget set, you can’t just forget it! You need to check back periodically to make sure your actual spending is in line with the targets you set. You don’t necessarily need to total up your expenses every month – this is why many people feel budgeting is too tedious to bother with.

However, the reality is that you simply need to check back every few months. Once you see that you’re meeting your targets, you may be able to check in every six months or even annually.
How to analyze your budget

  1. Compare your bills to the amounts you had set in your budget to ensure these necessary expenses aren’t taking more income than you anticipated.
  2. Total up your actual monthly spending on flexible and discretionary expenses to make sure you’re staying under the targets you set.
  3. If you’re overspending on one expense, then you either need to cut back or increase the target so it’s realistic.
  4. When you need to increase a target, make sure to total your expenses up to ensure you’re still spending less than you earn.
  5. If you aren’t, then you will need to cut back on something else to keep your budget balanced.

Step 6: Adjust your budget, as needed

In addition to reviewing your budget periodically, you also need to revisit it anytime there’s a change in your finances. This can happen when:

  • You have any change in your income, from a new job, pay raise or pay cut
  • There’s a new expense that you need to factor into your budget
  • A fixed expense changes, such as an increase in rent payments or after you refinance your mortgage
  • You cut a bill out of your budget

Finding the right budgeting tools to support you

A monthly budget is only effective if you use and refer to it consistently. In the past, this meant pulling out pen and paper or building your budget spreadsheet and tallying up expenses manually with a calculator.

The good news is that today’s technology makes it much easier to make budgeting a daily habit. There are budgeting apps that show you where your budget stands at any time you need. There are online budgeting spreadsheets that sync to your bank accounts to total up expenses automatically. Finding the right technology to fit your needs and lifestyle will make it much easier to budget.

Online budget spreadsheet templates

There are online budget spreadsheet platforms that work just like budget spreadsheets you’d create yourself. However, they use technology to make it easier to maintain. They have pre-set templates you can use to create your budget. Then they sync with your bank accounts and credit to categorize and total up transactions automatically.

Budgeting apps

There are also apps that you can download to your favourite mobile device. These apps also sync with your bank accounts to keep track of your spending in real-time. These apps will alert you when you’re close to overspending on an expense, so you know you need to cut back.

Budgeting software

If you aren’t comfortable syncing your accounts online or on your smartphone, you can also get desktop software. This can help you maintain your privacy and keep your financial information secure, while still getting the benefits of templates and expense tracking.

Envelope budgeting

If you prefer to budget manually, the envelope method may help you. You set your expenses for each month and withdraw the funds from your bank account to place in envelopes labelled for each expense. Then you only have the money in the envelope to spend.

This can help you budget because it gives you a physical way to measure where you are at in any given month. It can also be beneficial if you have varying income from month to month because you set spending at the beginning of each month and then budget accordingly.

Using your budget to save money and achieve your goals

Savings is something you build into your budget because it helps ensure you can save money every month. But what should you do with the money you save? You also need to create a savings plan, so you can allocate the money you save for specific needs and goals.

Emergency savings

Emergency savings is money that you have set aside in an easily accessible savings account. You use it to cover big unexpected expenses and emergencies that weren’t in your budget. If you’re injured and unable to work for a period of time, you have your emergency fund to fall back on. The same is true if you lose your job.

Emergency savings should cover 3-6 months of budgeted expenses. Essentially, you should be able to cover all your bills and other expenses without any need to turn to credit cards.

Vacation savings

Everyone needs a break, but the truth is that most Canadians rely on credit cards to take vacations. This just creates more financial stress on you and on your budget. A better strategy is to plan for trips and allocate money that you save for your trip.

Holiday savings

The winter holidays are the most expensive time of year for most individuals and families. People are often at high risk to take on more credit card debt than they can comfortably manage. To help avoid this financial stress, you need to allocate money that you save for holiday gifts and other expenses.

Down payments

Whether it’s for a car, a home or another major purchase, down payments can help reduce the costs of loans. A larger down payment means less money that you need to borrow. You can enjoy lower monthly payments and lower overall costs because you minimize the loan amount. Save up ahead of major purchases to make the largest down payments possible.

Registered savings plans

Saving for retirement and your children’s education is vital. You want to make consistent payments into a Registered Retirement Savings Plan (RRSP) to secure your retirement. If you have children, you should also open a Registered Education Savings Plan (RESP). This will help your family minimize the number of loans you need to cover post-secondary education costs.

Major life events

It’s also important to save up for major life events, even if you won’t be funding them through a loan. If you plan on getting married, moving to a new city, having kids – all these life goals will need money to fund them. Saving up in advance allows you to avoid debt.

Big purchases

Purchases like furniture and electronics aren’t cheap. If you make these purchases with credit cards, it often takes more than a few billing cycles to pay them off. That increases the cost of these items because you add on monthly interest charges to the purchase price. If you can plan and save up for major purchases, you can make them in cash.

Setting SMART goals for saving

If you want to save money effectively, you need to set SMART goals. SMART stands for:






You need to make goals that have a specific amount that you need to save by a set time. That way, you know how much you need to save each month to have the money you need to achieve your goal. You can measure your progress along the way to ensure you have the funds you need when you need them.