How to Make a Personal or Household Budget in Simple Steps

The idea of creating and living by a budget may seem unnecessary to some people. You may think you make enough money to save without tracking your expenses. That’s fine! Not everyone needs a budget. However, budgets are useful for everyone whether they need them or not! You may be wondering “what is a budget?”.

A budget is simply a tool and set of guidelines used to reach a financial goal. Let’s look at a very rough budget as an example.

Income after Tax:                       $3200

Rent:                                              $1000

Utilities:                                        $100

Phone/Internet:                          $100

Groceries:                                     $300

Transportation:                            $100

Memberships/subscriptions:   $100

Loan Payments:                          $250

Miscellaneous:                            $150


Net Income: $1000

Let’s break this down a little bit. We can see a general principle right away. You have your income after tax, and you have all your expenses. Everybody’s expenses are going to be different, but this example is more like budgeting for dummies. Income and expenses, that’s all this is.

Make sure when you create your budget you add every little expense you can think of.

You might have a magazine subscription, a gym membership, Netflix, Spotify Premium. No matter the cost, add everything you can think of into your budget. Better yet, look at your spending from the previous month to make sure you get everything.

If you stick to your budget, you’ll have an amount you can expect to save each month. As this was just an example, and not very thorough, there is much more to budgeting.

Budgeting Methods

Rather than just make a simple budget like above, you can choose to follow a proven budget method. These give you more rigid guidelines on how to budget. By following a budgeting method, you take away the necessity of deciding what to allocate your income to.

  1.     50/30/20 Budget

This method is simple. 50% of your income goes to bills and necessary spending. 30% is what you spend on your desires. This 30% can be new clothes, movies, dinner, or anything you want. The last 20% goes to savings. This means you put that 20% aside each month and you don’t think about it. Put it straight in your savings account, RRSP, or whatever you choose.

The benefit of using this method is it allows you significant room to cover all your expenses and fight off your debts. At the same time, you still have allocated savings which means you’re setting yourself for the future. And of course, you still have money to play around with if you so choose.


  1.     Pay Yourself First

This method prioritizes your savings, rather than expenses. You can choose between an amount or a percentage to set aside. Whichever works best for you, you subtract that amount out of your income and then begin to determine your other expenses.

The goal of this method is to put your savings first. Once you’re able to put away your desired amount, focus on your essential spending (groceries, rent, etc.) and then your “wants”.


  1.     Cash Only/Envelope

The cash-only method is one that forces you to stick to your budget by giving you envelopes of cash to work with. This may not be suitable for everyone, but it is sure to stop you from spending too much money. The idea is that if you spend $300 on groceries and $100 on miscellaneous spending, you take that amount out of the bank and place it in an envelope. Whenever you go to the grocery store you take money out of that envelope. If you want to go out to eat, go to the miscellaneous envelope.

Following a cash-only method may be a difficult method, but it gives you complete control over your spending.


  1.     Zero-Based Budget

The idea behind this method is every dollar you earn has a purpose. That means \$1000 has the purpose to pay your rent and \$300 is for your savings account.

Choosing this method may require more work to track all your spending, and your output depends on what you prioritize. If you choose to prioritize savings and rent then you have to work with what’s left for the rest of your expenses.


  1.     Value-Based Budget

This method is unique in comparison to the rest. Rather than prioritizing aspects of your spending, or using percentages, the Value-Based budget asks you to spend based on your values. This could mean you value health and wellness, so you spend $100 a month on your gym, supplements, massage, yoga classes, etc. Maybe you value your retirement savings so you set aside 25% right away and choose to live frugally elsewhere.

Instead of worrying about the amount of money you spend in certain areas, choose what areas deserve the money in your eyes. Then spend based on your beliefs.


  1.     Create Your Own Personalized Budget

The title speaks for itself. Rather than follow a pre-constructed method, you can choose to create your own budget. By doing this, you can take aspects of other budgeting methods you like and tailor them to your needs.

How to Budget Properly in Canada

The rest of this post is going to give you the tools you need to learn how to make a household budget. We’ll explore the important steps involved and show you how to budget money effectively.

1.     Set your Goals

The main reason to create a budget is to reach your financial goals. This could mean you want a budget to save enough money for a down payment on a house. Maybe you want to save up money for a vacation or a wedding.

By setting a goal upfront, we can tailor our budget to give us the best chance at reaching that goal.

For this example, and the rest of the post, our budgeting goal is to save enough money for a 5% down payment on a $400,000 house. We need to save $20,000

2.     Find your Monthly Income after Tax

Look at your paychecks and figure out how much you make per month after taxes. Maybe you have multiple streams of income. You could have your normal day job, a weekend/night job, or maybe you do some online freelance work. Whatever streams of income you have, add them all up.

For our example, we’ll say we make $4200 after tax.

3.     Add all Fixed Monthly Expenses

After making your goal and determining your income, you must add up all your monthly expenses. This means everything from rent, to train tickets, to your groceries. Make sure to include all subscriptions and memberships that you may not think of as a large expense. When budgeting, every dollar counts!

Here, you can estimate costs such as groceries and transportation as those tend to vary month to month,

My monthly expenses come out to $2600. These are all my fixed expenses including my student loans, grocery bills, phone bills, rent and all!

4.     Determine Your “Want” Expenses

These expenses can be anything that is not a necessity. For example, you can choose to spend $100 a month dining out. Maybe you spend $40 a month on new books. Whatever you think you spend money on each month add it all up. To play on the safe side of things, once you have a number, add an extra $20-30 as a buffer.

My “Want” expenses come out to $300 a month. I enjoy a cup of coffee a couple of times a week, a beer here and there, and of course a nice meal out.

5.     Examine the Difference Between Your Budget and Previous Month’s Spending

Here is where you figure out if your budget is viable. This may take some work, but it is worth it. This is a vital step in learning how to make a budget work. create an accurate and effective budget.

Look at all your spending from the previous month and compare it to your newly created budget. Is it accurate? Where are the differences?

This is the time where you can readjust your budget to reflect your last month’s spending.

For example, I found I spent more on groceries than I thought. It turns out baking goods for others requires money! I’ll add $100 to my monthly expenses. Now, my expenses turn out to be $2700.

6.     Put Your Plan into Action

Following all these steps allowed us to create a budget, and now we must put it into action. Look at all your adjusted expenses and income and see where you come out. Maybe you find you’re not saving very much money. Adjust again! Wherever you come out, use that money saved to reach your financial goal.

Let’s look at my example budget.

Income after Tax:         $4200

Monthly Expense:        $2700

Wants:                            $300

Take Away = $1200/month

If I stick to my budget, I have $1200 per month I can put towards saving up for a down payment on a house.

After going through these steps, we’ve learned how to make a budget plan. You may be thinking it’s too much work for you, or that you don’t need to make one. Like we said before, that’s fine. A budget is not necessary for everyone. For those of you who have financial goals, a budget is a sure way to reach them. By tracking your spending and creating a budget, you’ll have complete control over your money. 

In this article you will learn all about budgeting, how to create a budget and using it to your advantage.

What is a Budget?

A budget is an estimate of income and expenses for a set period of time. The objective is to save money on a regular basis and achieve a future financial goal. That is the focus of this article. When you have the knowledge, money and the motivation, it is possible to make a realistic household or personal budget.

Budgets have been the foundation of financial planning as far back as recorded history. Economists, accountants, parents, students and children who have a desire to buy something or travel somewhere make a budget in order to accomplish their goal. Even if you do not have debt or have excellent credit, a budget can help you become a better money manager.

With a budget, you know exactly how much money you have and how much you spend.  A budget eliminates all of the guess work and gives you the details. For example, each month you pay your mortgage or rent. Some people might not think they need a budget because it is a regular set monthly expense. You also buy gas, if you have a car, get clothes cleaned, eat at restaurants and shop for food. This is where the budget comes in. when you add the other expenses like insurance or medical co-pay, the budget details every variable expense you have.

Your budget will tell you how often you buy gas or how much you spend on eating in restaurants in one month. It is a tool that will help you reach a financial goal over a specific period of time. A budget is the means to show you how much money you have, what your monthly income is and what your monthly expenses are.

Creating a budget

The key element that is necessary to create a budget is a source of income. Once you have a source of income for your budget you will need to create categories. A college student that plans to take a trip to South America might set up a budget based on income from a part time job, loans, grants and scholarships. Their budget might include expense for books, laundry, eating out and so forth. A middle school student who wants to buy a new snowboard might set up a budget based on income she gets from doing chores. Her budget might already include a category for money to go to the movies and buy her favorite snacks and clothing. She might simply add a category for the snowboard to an existing budget. In either case the bottom line is you need a source of income to create a budget.

Your budget categories should be specific to you. You might have a budget with a category for dental co-pay. Another person who has a different insurance may not have a dental co-pay so there is no need to add that item as a category. Remember there is no right or wrong way to create a budget. The bottom line is, create a workable plan that will help you manage your money and your expenses.

  1.     Calculate your monthly income from all sources
  2.     Look at every purchase for at least the last month. Three months if you been tracking spending. Do not panic if you’ve thrown away all of your receipts and have not looked at a bank or credit card statement in a long time. This is about moving forward. Simply start from where you are today.
  3.     Make a list of categories to see where your money goes. For instance, one person might have two categories, one for eating out and another for entertainment. Another person might include eating out in one general category called entertainment because they do not eat out unless they go out for entertainment. Do this to include everything you spend money on. Gas might be one category, car maintenance might be a separate one.

Here are some helpful suggestions:

  • Car Insurance
  • Car maintenance (Some people put everything except gas purchases here)
  • Car Payment
  • Car wash
  • Credit card payments
  • Dry cleaning/laundry
  • Eating Out
  • Entertainment
  • Groceries
  • Hobbies
  • Home owner/Renter’s insurance
  • Household items (cleaning supplies, etc.)
  • Medical co-pay
  • Rent/Mortgage
  • Utilities

Some categories are going to be monthly while others like car maintenance might come up every three to six months. You can either keep it there to include in a quarterly analysis or add it during the month it becomes an expense.

Analyze and Realize

Now comes the most challenging part for many people. Look at where your money goes. Those daily two dollar lattes add up. You might not realize it when you buy them, but at the end of the month one latte’ 5 times a week times four weeks is forty bucks. Is that the same amount as a monthly credit card payment? Think about it.

Do you buy groceries with the intention to cook at home then ‘something comes up’ so you order take out? Do you throw the food out that you never eat because it went bad? When you analyze your budget and realize where your money goes, you can decide where to cut waste in your budget.

Set A Realistic, Attainable Goal

After you analyze where all of your money goes, it’s time to make some decisions. This might not be as simple as it sounds for some people. This step is about making choices. You may not see the results for months but don’t back down. If you set a goal to buy a house that might take a long time. On the other hand, if your goal is to buy a new wide screen home entertainment center, that might take less than a year.

If your goal is to cut your weekly grocery bill by 15 percent, that might mean you buy smaller sized quantities of condiments and use less per meal. These are individual choices that help you make a realistic budget that is the baseline for financial freedom.

How To Make A Budget Plan


This is more of a subjunctive question. How to do something can usually mean looking for answers in places where there are only question. They main element is to begin with the willingness and the motivation to set a realistic goal then work smart to attain that goal. The girl who wants the snowboard knows how exciting it will be to have one. The University student who wants to travel to South America understands the value of how a trip to South America could look on her application to graduate school.

  •       Make a plan that is manageable-if you know you love drinking a latte every morning, it’s better to work towards one less latte per week than it is to say you’ll never have another one.
  •       Examine all the areas where you can cut expenses. Can you realistically do your laundry one less day per month? Maybe you’ll have to wear something that just sits in the bottom of your clothing draw that you stopped wear when you bought a new shirt.
  •       Are you willing to change your workout routine from the high priced gym to using the local athletic field so you can save the monthly membership price?
  •       Can you buy a different brand? Maybe you can save a few dollars on things you buy if you purchase the store brand product. It might not be the ‘top shelf’ choice, but it will help you decrease your grocery bill.
  •       Examine where else you might be able to cut costs.
  •       Plan meals
  •       Go to one less movie per month
  •       Be aware of how many times you leave lights on in rooms you are not using.
  •       Become a better manager of the things you can change and know what they are.

All of the suggestions and recommendations are thing you can control. These are not the monthly fixed expenses. Car payments, rent/mortgages or insurance are the non-negotiables.

How often you shop, what you wear and how often you go on an excursion are the things you can take control of. Success is not a black and white issue. People who are flexible and willing to make changes as they go along are usually successful.

When you develop a budget, make a category for everything and stick to updating it on a daily basis. Whether it’s making household budget, or a personal budget the bottom line is discipline.

There are many YouTube videos, books and websites you can visit. You can even download their ‘proven method’. The bottom line is what will make the difference is your willingness and motivation to change.

You might even find that the ‘proven’ methods, downloads all come down to one single aspect. You have to be willing to do it. Most of all the budget has to work for you. You want to live on a daily basis without the stress of trying to cut corners. The long term goal is to change your lifestyle. The budget has to work for you because if you do not believe it will work, it won’t. The budget will help you to live a satisfying stress free life around money.

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