Creating a Budget

A budget is an effective and powerful tool to help you manage your finances. A budget:

  • helps you organize your spending.
  • tells you what money comes in, what money goes out, and where the money goes.
  • can help you identify which expenses are the most important.


Creating a budget isn’t difficult. Follow these three simple steps.

Step 1: Set Your Goals

Ask yourself: What’s important to me? What do I need? What do I want? Once you know what you want, you can begin to budget accordingly.

  • Short-term goals: These are goals that you’ll achieve in the next 12 months, such as paying off credit card debt, purchasing a new television or refrigerator, or paying for a vacation.
  • Mid-term goals: These are goals that you want to achieve in the next 2-5 years, such as saving for a down payment on a house or for new furniture.
  • Long-term goals: These are goals that take more than five years to reach, such as retirement planning and post-secondary education expenses.

Step 2: Track Your Income and Expenses

Pull together the records for your household income and expenses. Be thorough and honest when estimating any expenses. Your budget should be an accurate picture of what you spend. But don’t worry if you use estimates for your some parts of your budget. It may take a few months to determine the specifics, particularly for items that don’t occur regularly.

Organize your information in the following categories:

  • What you earn: your income, including take-home pay after taxes, commissions or bonuses, alimony/spousal support, child support, Social Security, pension or other retirement benefits, disability, interest, dividends, etc.
  • What you spend: include fixed and variable expenses. Fixed are those that don’t change every month (rent, mortgage, insurance, loan payments, retirement savings, etc.) and usually cannot be eliminated. Variable expenses are those that change (cable television, groceries, gas, telephone, etc.) and could be reduced or eliminated.
  • The bottom line: Subtract total expenses from total income. The amount left over is called "discretionary income." This is the money you can use for savings and emergencies.

If your bottom line is positive – you have more income than expenses –you can add more to your savings category.

If your bottom line is negative – you have more expenses than income – you are spending more than you earn and probably financing the deficit with credit. If you’re spending more than 15-20% of your take-home pay on repaying debts and credit cards, take a look at your variable expenses and decide how to bring your spending under control.

Step 3: Keep track of expenses

Keep a monthly expense record. Carry a small notebook with you and record all purchases and withdrawals. Many people find they spend hundreds or even thousands of dollars each year on coffee, snacks, magazines, and impulse purchases. The goal of tracking expenses is to understand where you’re spending your money so you can make adjustments.

Follow these tips to help you maintain your budget all year long.

  • After a month or two, re-evaluate your spending and savings goals and re-adjust as needed. 
  • Always leave room in your budget for savings, because your savings will help you stay within budget when unexpected expenses like car repairs or medical bills pop up.
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