How To Make A Monthly Budget In 2024

Managing personal finances can be a significant mental load, causing stress and anxiety. From paying bills to dealing with debt to saving for future goals and beyond, the constant worry about making ends meet and unexpected expenses can be overwhelming.

Creating a budget can ease this burden, which is why it’s imperative that you come up with one sooner rather than later.

Key Takeaways

• Personal finances can be a major source of stress for Canadians.
• Coming up with a realistic budget can help alleviate much of the mental load that comes with financial issues.
• Several budgeting strategies can be used to better allocate every dollar you earn, no matter what your income may be.

What Is A Budget?

A budget is anything that outlines your income and expenses. Essentially, a budget is a detailed document, list, or even a set of financial goals that you write down. 

The main point of a budget is to help you take control of your finances and manage your spending and savings. People often find it helpful to set monthly and yearly goals so that they have something to work towards. 

Budgets are great for people who:

• Live paycheque to paycheque
• Spend too much
• Are trying to pay off debt
• Have trouble saving on a regular basis

A budget will help you live within your means, set spending limits and create saving goals. It can help you pay down any debt and figure out how to prevent any future debt from getting out of hand.

Monthly Budgeting Strategies 

Depending on your financial situation, needs and savings goals, one budgeting strategy may work with you better than another. 

Consider one of the following budgeting strategies to help you better manage your finances:

Envelope Budgeting

Envelope budgeting is a money management system that helps consumers control their spending by physically placing cash into envelopes designated for specific categories, such as rent or mortgage, groceries, gas, and utilities. 

The amount of cash in each envelope matches the budgeted amount for that category for the month. Once the money in each envelope has been spent, you can’t spend any more in that budgeting category, unless funds from another envelope have been reallocated. 

50/30/20 Budgeting Rule

The 50/30/20 budgeting rule offers a way to split your income into three categories:

• Needs (50%): This category covers essential costs, such as rent or mortgage, groceries, utilities, gas, insurance, and others. These are expenses that you’re unable to avoid.
• Wants (30%): This category is for leisurely spending, such as entertainment, eating out, vacations, and hobbies. These are expenses that you don’t necessarily need but enhance your lifestyle.
• Savings and Debt Repayment (20%): This category is for financial priorities, such as savings, retirement, investments, and emergency funds. These are costs that are needed for financial security in the future and debt reduction.

Learn More: What Is The 50/20/30 Rule For Budgeting?

Pay Yourself First

Pay Yourself First is a budgeting and personal finance strategy that involves prioritizing saving and investing before paying for other expenses. The goal of this strategy is to consider your savings as a fixed expense. This ensures that you regularly put money towards things like retirement, padding your emergency fund, or debt repayment.

Then, use the remaining money for your regular expenses, such as groceries, bills, and entertainment.

Zero Based Budgeting

Zero-based budgeting involves allocating every dollar of your income to a specific expense or future goal. This ensures that you will end up with a zero dollar amount at the end of each budgeting period after subtracting your expenses from your income. In this way, you’ll start each budgeting cycle from a zero base. 

Each expense must be justified as a necessary cost for each budget cycle, which helps avoid unnecessary spending.

Steps On How To Create A Monthly Budget

To create a budget that suits your financial situation, follow these steps:

Step 1. Calculate Your Net Income Per Month

To calculate your net income per month, subtract all your income taxes and other benefits from your gross monthly income. Here’s the formula to follow:

For instance, if your gross monthly income is $7,500, and all your taxes and benefits (including income taxes, CPP deductions, RRSP contributions, etc) total $2,000, then your net monthly income would be $5,500 ($7,500 – $2,000).

Learn more: How To Calculate Your Take-Home Pay In Canada

Step 2. Calculate Your Costs

Next, determine all expenses you pay each month. This list may include the following:

Fixed Expenses: These are regular monthly expenses, such as rent or mortgage, car loan payments, utilities, insurance, and subscriptions.

Variable Expenses: These costs tend to fluctuate every month, and may include things like groceries, gas, clothing, dining out, and entertainment. The best way to determine how much you spend each month in this category is to track them over a few months and find an average.

Irregular Expenses: Consider costs that occur on occasion, such as car maintenance, vacations, and gifts. Again, you may want to calculate the monthly average after tracking them for a few months. 

Savings: Include savings goals as an expense. This could include retirement contributions and emergency funds. 

Step 3. Track Your Monthly Spending With Budgeting Apps

You can always create and follow a monthly budget the old-fashioned way with pen and paper, or even on a spreadsheet on your computer. But in today’s digital age, there are several budgeting apps available that can make creating a monthly budget very easy and convenient. 

Here are a few worth considering:

What Types Of Expenses Should I Include?

Monthly expenses can vary greatly and be very detailed. Here are a few examples of expenses you should consider including in your budget:

Housing Expenses

• Mortgage payments or rent costs
• Taxes or condo fees
• Insurance
• Utilities
• Maintenance

Transportation Expenses

• Car payments
• Public transportation costs
• Insurance
• Gas
• Maintenance

Daily/Living Expenses

• Groceries
• Medical bills (dental, yearly check-ups)
• Childcare (if applicable)
• Basic clothing and personal care
• Life/ medical insurance

Debt

• Credit card payments
• Loan payments

Savings

• Emergency fund
• Retirement
• Investments
• Savings account

Tips To Help You Budget And Save Better

Starting and following a budget may sound simple enough. But it can be easy to procrastinate or veer off track. To help you commit to making a budget and sticking to it, here are a few tips to consider:

Automate Your Savings

Automating your savings makes it easier to ensure that you’re putting money away every month. It can be tempting to skip a month here or there and use that money you otherwise would have put away to spend on something else. 

It can also be easy to forget to set some money aside for savings purposes. Automating your savings eliminates these issues.

Start Investing 

The earlier you start investing, the better. This will give you more time to grow your money. Even if capital is low, you can still invest. You can use a variety of micro-investing apps that can round up your expenditures or help you invest small amounts of money over time to help you build something worthwhile in the long run.

Use The Right Account

While you can always use a standard savings account to stash some money away, there are other types of accounts you may want to use to save and grow your money, depending on your goals. You may even want to consider sprinkling your money across various accounts to take advantage of the benefits of each: 

TFSA

A Tax-Free Savings Account (TFSA) is a registered savings account that allows you to earn investment income tax-free. You can contribute up to a certain amount each year, and carry forward unused contribution room to the following year. You can withdraw funds from your TFSA at any time, without paying taxes on the funds.

Learn more: Tax-Free Savings Accounts: What You Need to Know

HISA

A High-Interest Savings Account (HISA) is a type of savings account that offers a higher interest rate on deposits compared to standard savings accounts, helping your money grow faster. Funds in this account type are easily accessible, allowing you to withdraw cash without penalties.

Learn more: Best High-Interest Savings Accounts In Canada

RRSP

A Registered Retirement Savings Plan (RRSP) is a savings and investing vehicle for Canadians to help them save for retirement. Contributions made to this type of account are tax-deductible, which means you can lower your taxable income for the contribution year you make the contribution. Income earned within the RRSP is not taxed as long as the money stays in the plan.

Learn more: When Is The RRSP Contribution Deadline?

FHSA

The First Home Savings Account (FHSA) was recently introduced by the government to help Canadians save to buy a home. Money contributed to the account not only reduces your taxable income, but all money withdrawn, including any interest, is tax-free.

Learn more: FHSA Contributions: How To Invest For Beginners

Pay Down Debt Using The Snowball Or Avalanche Method

If you’re carrying a lot of debt, particularly high-interest debt, consider adopting a specific strategy to pay it down. Here are a couple of the more popular methods:

Snowball Method

The Snowball Method is a debt repayment strategy that focuses on paying off the smallest debts first, no matter their interest rates. You’ll continue making minimum payments on all other debts in the meantime. Once you pay off the first debt, use the additional funds to start tackling the next debt. 

This method builds motivation by giving you quick wins, boosting your confidence as your debts gradually disappear.  

Avalanche Method

The Avalanche Method focuses on paying off debts with the highest interest rates first. In the meantime, you’ll make minimum payments on all other debts. Once the highest-interest debt is paid off, you can put the extra money towards the next highest-interest-rate debt. 

This method helps you minimize the total interest paid over time, which can save you money.

Make A Realistic Budgeting Goal

A realistic budgeting goal is one that you can achieve within a reasonable amount of time and aligns with your financial situation. Examples of goals can be saving for retirement, building an emergency fund, or paying off debt. 

A good budgeting goal balances both flexibility and discipline, which can help you stay on track without feeling like you’re constantly sacrificing.

Benefits Of Budgeting

Having a budget in place and following it comes with a few perks:

• Understand Your Financial Situation. A budget is a spending plan that will help you visualize and understand your financial situation. It shows how much you make and how much you spend. By seeing the exact amount you’re spending per month, you can start cutting down on unnecessary expenses and eventually reach financial success.
• Achieve Your Financial Goals. By setting specific financial goals, a budget can help prioritize saving and allocate money toward these goals.
• Avoid Debt. A realistic budget ensures that you only spend what you have, which can help you avoid unnecessary debt.
• Prepare For Emergencies. Budgeting encourages you to build an emergency fund, which you can use if you’re faced with an unexpected expense, such as job loss, home repairs, or car repairs.
• Build Wealth. To build long-term wealth, you need to be disciplined with saving and investing, which budgeting encourages.

Additional Reading

Budgeting vs. Debt Consolidation

Budgeting For a Car

How to Make a Budget When You’re In Debt

Bottom Line

A budget is designed to keep your finances in check. But if you find that your budget isn’t quite working for you at some point, you can change it. In fact, reevaluating your budget on a regular basis is recommended, particularly when your financial life changes.

Budgeting FAQs