If you want to control spending and work toward financial goals, you need a budget. A personal or household budget is a summary that compares and tracks your income and expenses for a defined period, 1 month. While the word budget is related to restricted spending, a budget doesn’t have to be restrictive to be efficient.

A budget will show you how much money you expect to bring in, then compare that to your expenses like rent and insurance and the discretionary spending, like entertainment or eating out. Rather than viewing a budget as a negative, you can view it as a tool to achieve your financial goals.

Calculate Your Income

How much income can you expect monthly? If your income is in the form of a regular paycheck where taxes are automatically deducted, then using the net income amount is fine. If you’re self-employed or have outside sources of income, like child support and Social Security, include these as well. Record this total income as the monthly amount.

Determine Fixed and Variable Expenses

Fixed expenses are those mandatory costs that you pay the same amount all time. Include items such as mortgage or rent payments, trash pickup, car payments, set-fee internet service, and regular childcare. If you pay a standard credit card payment, involve that amount and any other important spending that tends to stay the same from month to month. If your plan is to save a fixed amount or pay off a specific amount of debt every month, also include savings and debt repayment as fixed expenses.

Make Adjustments to Expenses

If you are having a situation where expenses are high than income, find areas in the variable expenses you can cut. Look for places you can decrease spending such as eating out less or remove a category like canceling your gym membership. Goal to have your income and expense columns to be equal. This equal balance means all of your income is accounted for and budgeted toward a certain expense or savings goal.

Separate Needs and Wants

You should ask some questions from yourself that Do I need this? Will spending the money makes me closer to the goals or more away? Can I live without it? Set clear priorities and the decisions become easy to make learn more.

Design Your Budget

Be sure that you aren’t spending more than you earn. Balance the budget to cover everything you need to pay for. One easy way to do this’s with our free, easy-to-utilize budget calculator spreadsheet and worksheet that is built for Canadians.

Put Your Plan into Action

Match your spending to when you get income. Decide ahead of time what you will use every paycheque for. Ask yourself: Have I allocated money for the necessities (transportation, housing, food, utilities, etc.)? Have I put money aside for the debt payments, unexpected expenses, savings, and the fun stuff? This will protect you from going into debt more because you will not rely on credit to pay for your living expenses.

Determine what to do with your savings

You have savings now, and what is the best thing to do with them? If you have high-interest debt, it can be good to pay that off. You may consolidate that debt at a low-interest rate to save more and pay it off fast.

A good target is to set a savings goal of accumulating $1,000 in your savings account, and then build that into a three-month emergency fund. If you prefer to target the income’s percentage, try beginning at 5 percent or 10 percent, and then grow your savings rate over time.