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If you’ve never made yourself an effective budget, don’t worry, you’re not alone. The personal budget is probably one of the most hated financial terms out there; it brings up memories of pouring over bills and statements late at night trying to figure out how you’re going to afford to live. That being said, budgeting is a very important step toward gaining financial freedom.

Budgeting helps you to make up and implement spending rules for what you can and can’t afford. It is an easy way to deal with the stress of paying off debt and reducing costs. With a set of personal budget rules, hopefully, money management will not be something that causes anxiety and more reassurance that there are always ways to save money and pay off expenses.

What is a Budget?

A budget can really be anything, a detailed document, a 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 saving. 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 find that they don’t have enough money to live
  • People who spend too much
  • People who are trying to pay off debt
  • People who have trouble saving on a regular basis
  • People who need their paychecks to last longer and cover more

A budget will help you live within your means, set spending limits and create saving goals. It will allow you to see how to start paying down any debt you might have and then figure out how to prevent any future debt from getting out of hand.

Different Types of Budgets for Different Lifestyles

Everyone’s budget is going to look a bit different. That being said, there are two general types of budgets that you can make for yourself.  

Long-Term Budgets vs. Short-Term Budgets

“Short-term” budgets are generally meant to cover 3, 6, or 12 months’ worth of income and expenses. For example, saving up for a nice pair of shoes or a weekend away. This type of budgeting is easier than creating a long-term budget because you have a good idea of what your income will be during this time and it involves less commitment.

However, in “long-term” budgeting, there is more uncertainty because there’s more room for life to get in the way. What if you lose your job? What if you get sick or injured and need to pay for medical assistance? You never know how your financial situation could change, as exterior factors shift easily in the long-term.  

Essentially, long-term budgets cover several years in the future. Examples of long-term budgets include saving for a house, sending your children to college, and retirement planning. To create a long-term budget, list your long-term goals and estimate how long it would take you to save for them. After this, use a spreadsheet or other program to determine how much you should put away monthly for these goals to be reached.

Benefits of Budgeting

Whether you want to save money, get out of debt, prevent yourself from going into debt, or save a certain amount, each of these goals includes managing your money. Your budget is a great tool to: 

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. Thus, it is the clearest and precise way to see how much you’re spending. By seeing the exact amount you’re spending per month, you can start cutting down on unnecessary expenses and eventually reach financial success. Additionally, your budget also helps you realize your financial position because it allows you to see how much you spend compared to how much you make. It will show whether you’re in debt or not, comfortable or not, and if you need to start saving or not. It is the map to your financial life.

Having trouble creating a budget? Take a look at these budgeting apps.

Achieve Your Financial Goals

Having a budget forces you to plan out your goals, save your money, and keep track of your spending habits. By allocating a specific amount of money to yourself each month, you are not allowing yourself to live above your means. Thus, a budget can help achieve your financial goals, because no matter what your goal is, you have to know how much you’re allowed to spend.

To learn 10 ways of living in the present while saving for the future, read this.

Create Your Budget

As we mentioned earlier, the way you create your budget should reflect your financial situation and how you want to live your life. It should depend on your income, your regular and irregular expenses, etc. Remember, everyone’s budget is unique to his or her lifestyle, so if yours doesn’t match someone else’s, don’t consider it a mistake, consider it a learning experience.  

Start Tracking Your Money

Money, it’s the driving force behind your budget. So you need to start tracking all of it, how much is coming in and how much is going out. This is basically the first step of creating your actual budget so be honest with yourself and account for everything, including those purchases you maybe shouldn’t have made (everything single dollar you spend will impact your overall budget and goals).

You’ll probably want both a weekly and monthly picture of your expenses and income. Keep track of all your spending for a week and then for a month, having a good understanding of your spending habits will help you greatly when creating your actual budget.

Can budgeting help you improve your credit score?

Write it Down

Having some sort of document (choose whatever works best for you) to double-check, interact with and write numbers down on will make your budget seem real and official. It will help you remember certain numbers, set new goals, and keep track of all the important facts and figures you need.

The information you have from tracking all your money (income and expenses) should be included in whatever type of written or typed document you create. Obviously, everyone’s budget will be different as everyone’s lifestyle is different, but to help you get started, here are some of the major categories you should think about including in your budget.


  • From your job
  • Any other form of income you might receive within a month

Expenses- Home

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

Expenses- Transportation

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


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

Expenses- Debt

  • Credit card payments
  • Loan payments


  • Emergency fund
  • Retirement
  • Investments
  • Savings account


  • What are your personal goals and how do they fit into your budget?

It’s important to stay motivated when you’re trying to build a solid budget. It is one thing to sit down and write one out and a whole other thing to actually adhere to the rules you impose on yourself. It’s hard keeping to a rule book but spending while on a budget doesn’t mean you have to go without some of the things that you love. It just means you’ll have to be a bit more selective. Also, don’t forget to be realistic in your expectations. 

Why Do Budgets Often Fail?

More often than not we get overzealous with our goals and expect to go “cold turkey” on expenses we deem unnecessary. However, as mentioned earlier, it’s one thing to create a budget and another to actually follow it. Here is a list of things that often cause people to fall off the budget wagon:

  • Not creating a budget that fits your lifestyle
  • Too restrictive/no flexibility in the budget
  • Forgetting irregular expenses
  • Not tracking your expenses
  • Forgetting to save and plan for emergencies
  • Lack of motivation
  • No automated payments – lack of time and discipline can ruin your intentions to pay, so it’s beneficial to set up automated bill payments
  • Budgets not related to personal goals – saving is more difficult when unconnected to real-life desires. For example, it’s easier to save $1,000 for a car then just for fun

Nothing is Set in Stone

Don’t forget that at any point if you find that your budget isn’t quite working for you, you can change it. It’s your budget which means you can reevaluate it at any point. It’s actually in your best interest to reevaluate your budget on a pretty regular basis (every couple of months) because your life changes and therefore your spending habits probably do too. Change is ok so instead of allowing it to negatively affect your budget use it to your advantage, you’ll be all the more successful.

Bryan Daly avatar on Loans Canada
Bryan Daly

Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.

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