How to budget: steps to get started

Posted on 6 November 2021

Written by Chris Galea

At Spergel, we often hear that one of the most common barriers to setting up a monthly household budget is not knowing how to budget. Yet the power of a budget is enormous. It allows you to review your expenses and income, and make a realistic decision on how much you are able to spend each month. It can prevent you from running into debt, and instead help you to save for big purchases. A budget makes a huge difference in how you manage your money. Once you have a budget in place, you may only need to review it every now and again, although it does require discipline to stick to. Ultimately, budgeting means less time spent worrying about whether or not you can afford that next purchase you are contemplating, sets reasonable boundaries, and can allow you to reclaim your life. In this article, we explain how to budget, and how you can create your own budget today.

Why do I need a budget?

A budget is essentially a key to managing your money. It clearly maps out the income you receive, the expenses you make, and the savings and disposable income you can afford. It is also the first step of setting yourself financial goals, by showing you how and when you will be able to achieve them. Essentially, a budget gives you complete clarity on your finances. It can help you to save, repay your debts, allow you to make the most of your money, and give you financial control. By creating a budget, you can set limits on your spending, calculate realistic debt repayments, and save. This will in turn help you to gain control over your finances, and reduce your overall stress levels, allowing you to achieve a greater quality of life.

How to budget

When it comes to ‘how to budget’, there are of course many different ways to do so. Below, we have indicated some of the ways we see Canadians successfully budget thanks to the 100,000 individuals we have helped to become debt free here at Spergel. Before you begin to create your budget, here are some key considerations you should make:

  • Your financial goals – think both short-term and long-term. Short term, these could include paying off credit card debt or saving an emergency fund, and long term, they could include repaying all debts, saving for a vacation, or having a generous retirement fund.
  • Your expenditure – do you know where all your money goes, down to the last cent? Take note of all your expenses and keep track of your money to better understand your spending habits and perhaps where these are essential or just desirable.
  • What you need vs what you want – there is a huge difference between necessities and desires, which is key when it comes to budgeting. With all your expenses, consider what is essential (like living costs), and what is desirable (like dinners out and vacations).

Creating a budget

Ready to know how to budget? Take the following steps to understand how to best create a budget no matter what your financial situation:

Step 1: Record all your income, expenses, and savings

The easiest way to do this is to work through your bank account statements, payslips, and bills. You should then create a spreadsheet to track every single cent of your income and outcome. When tracking the source of each, it is important to provide helpful, detailed names so that you can easily track where your money is coming or going for future reference. Once you have entered all of your details, you now have a review of your current finances. You should know pretty soon where perhaps you need to save more or spend less money to create a more equal balance. Save your budget somewhere safe so that you can easily access it again as a reference point.

Step 2: Review your situation

Now that you have a view of your situation, it may be helpful to research average guidelines on what Canadians typically spend and save for each category of your budget, for instance, groceries, rent, insurance, and so on. You can use these guidelines as a basis to assess where you may be overspending or underspending. From there, you can determine where to focus your attention to reduce costs. It is important to note that these guidelines cannot strictly apply to everyone, but they are a good baseline to follow for the spending habits of Canadians with a similar age, income, and household situation to you.

Step 3: Set your budget goals

Now you have a good idea of your situation and baseline, it is time to act on your next steps. What exactly is it that you want to achieve? Are you tired of niggling debts that you simply want to pay off? Are you stuck in your overdraft? Or just making the minimum payments on your credit cards? Now, you should list out those short-term and long-term goals you want to hit, and work out how you plan to get there along with a timeline. It is key to ensure these goals are realistic, so that you can actually achieve them within a reasonable period of time. Setting yourself some incentives along the way will also help to motivate you on your financial budgeting journey.

Step 4: Track your progress

It is all very well having a budget in place, but an important step of the ‘how to budget’ journey is regularly reviewing your progress to see how you are tracking. This should involve keeping hold of any receipts and bills, as well as reducing your spending to attempt to hit your goals. Each time you review your budget, you should update it with any applicable changes to your income or expenses. Each month, assess how your budget is performing against what it is you actually spend on a monthly basis. See how realistic your budget is, and if you are making positive progress. If not, why not? Which category of spending is showing the largest difference? Do you think you can continue to meet your goals? By performing these reviews, you are more likely to stay on track.

That’s your guide on how to budget! It should form a helpful basis for you to track your spending and assess your progress on areas you want to work on and goals to achieve. A few tips to help you stick to your budget include using tangible cash instead of using credit cards for spending, as it can encourage you to think twice and prevent impulse purchases. Separating out major expenses for bills and essentials at the start of the month is a good idea too to ensure you are not tempted to use the money elsewhere. You should also work on preparation for any unexpected bills like car repairs or property maintenance. Being conscious of any unplanned expenses will become much easier with your budget over time. The advice and support of a reputable Licensed Insolvency Trustee can also be valuable in helping to find you a form of debt relief.

If you want to learn more about how to budget and the forms of debt relief available to reduce your debt and permanently stop collection calls, a Licensed Insolvency Trustee can help you. Book a free consultation with one of the debt experts at Spergel to learn more about how to begin a fresh financial future. You owe it to yourself.

Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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