Building your household budget.

  1. Budgeting – Your Money Management Cheat Sheet for Success
  2. Building a Budget that Works: A Quick Step-by-Step Guide

Building a Budget that Works

The Best Way to Create a Monthly Spending Plan in 6 Steps

Building a household budget for the first time isn’t as hard as you might think. There are many methods you can use to create a family spending plan, but following a step-by-step guide is the best way when you’re just beginning to learn how to manage money effectively. Here are 6 steps that you can quickly read through and start on right now to build a budget that works for you and your family.

1. Set Practical Budget Goals

Before you build your family budget, it’s important to have specific goals in mind. This will help you focus your efforts, make the right decisions, and stay motivated to stick to your budget. A practical budget goal should be challenging yet realistic; you should also give yourself a deadline to reach it, though it’s also okay to give yourself extensions later. Here are some examples of financial goals you could set:

  • Pay off credit cards or loans
  • Save 3 months of rent for “just in case”
  • Build up enough savings to take the vacation you’ve always wanted
  • Contribute to an RESP for your children’s education
  • Save up a down payment for a home
  • Afford your hobbies without getting into debt

You’ll notice that deadlines and specific amounts are missing from those examples, and that’s because only you can set those for your situation. No goal is better or worse than another. All that matters is prioritizing what’s important to you. Challenge yourself, but work at your own pace. Remember that if your situation changes, you can always change your goals along with it.

2. Track the Money Coming Into Your Household and Your Spending

Once you have some practical goals in mind, it’s time to figure out how money is flowing in and out of your household. You probably already know how much you earn each month and how much you might get from other sources (e.g. child tax credits, alimony or child support, investment income). But do you know where it all goes? The best way to figure this out is simply to track your spending for a month. Whether you’re paying your bills, shopping online, or buying snacks at a convenience store, jot down every cent you spend into a single document. Doing this will give you a good idea of your overall spending habits, and you might be surprised by what you find out. To make the process even easier, use this simple money worksheet: our Monthly Expense Tracker.

3. Avoid Spending More Than You Make
Which Is Called Overspending

Overspending is a key reason why household budgets fail, so all of these steps help you avoid spending more than you make. With practical goals to work towards and knowing your expenses, you’re ready to prepare your budget. Your budget must do two things. It must prevent your expenses from exceeding your income, and it must align with your practical budget goals. You already know what your expenses are because you’ve been tracking them. So here’s the first budget maker question: Are you spending more than you earn? If you are, then review that master list of expenses and cut it down until your total expenses match your total income. This will help you avoid using credit to make ends meet, which often leads to expensive debt problems.

Once your expenses don’t exceed your income, ask yourself this second question: Do your expenses align with your budget goals? For example, let’s say Rob’s practical budget goal is to save for a down payment on a house. After reviewing his expenses, he realizes that his money is going more towards spending on vacations than it is saving on a down payment. If his main goal was to have vacations, then this would align with that priority. However, Rob’s goal is actually to save for a down payment. Therefore, he adjusts his budget so that he’s spending less on vacations and saving more for his down payment. Like our hypothetical Rob, review your own budget to see if your spending makes sense for your goals, and adjust accordingly. For an easy-to-use template that also works as a budget calculator, check out this Interactive Budgeting Spreadsheet.

4. Understand the Relationship Between Needs and Wants

Cutting down spending to balance your budget is easy to say, but it can be hard to do if you don’t understand the relationship between needs and wants. Which expenses should be reduced or cut, and which should be kept? This depends on your specific situation and money goals. However, here’s a quick trick: whenever you’re unsure about a particular expense, ask yourself if you need it, or just want it. Do you need to eat out 3 times a week because you don’t have time to make home meals, or do you just want to do that? Do you need to buy a new car, or do you just want one when a more affordable used vehicle would suffice? When balancing your budget, remember that it’s easy to think that a want is actually a need. If this is what you’re having trouble with, start by reducing an expense by 50% and see how it goes. Ultimately, you want to help prevent making purchases you’ll later regret.

5. Make Room in Your Budget for Irregular Expenses

Tracking your expenses for a month will have given you a good idea of your regular spending habits. However, it may not cover the irregular expenses that every personal and family budget plan also has to deal with. This can include clothing, school fees, annual memberships, Christmas shopping, new tires, etc. To prevent these costs from breaking your carefully crafted budget, make room for a seasonal and unexpected expenses fund. For example, if your family budget lets you save $80 a month in this fund, then you’d be perfectly ready for a $400 seasonal expense 5 months later without scrambling to find extra money. Try to keep this separate from your emergency fund, which is meant to help you through financial emergencies.

6. Put Your Home Budget Plan Into Action

If you finished all the previous steps, then congrats, you made a budget! Now it’s time for the most important part of any plan: putting it into action. Ask yourself: Have I covered what I need (housing, food, utilities, transportation, etc.)? Have I factored in debt payments and put money aside for unexpected expenses, savings, and the fun stuff? You might discover that some parts of your budget need to be adjusted as you use it. That’s totally fine. Do whatever you need to fit the budget to your situation and your goals. This might include revisiting your expense tracking, rebalancing where your money is going, adjusting your goals, or reflecting on your needs vs. wants. Let your budget grow alongside you and enjoy the feeling of making real progress towards your financial goals!

How to Build a Budget that Works Every Time with a Paycheque Plan

Building a budget can’t be done overnight. And sometimes, despite your best efforts and reading every “how to” guide there is, you still need more help to create a personal budget that works for you and your family. Whether you want a paycheque plan to link your household spending to when you actually get paid, need help to figure out what to do about debt payments, or just need a simple monthly budget template so that you can avoid living pay cheque to pay cheque – let us help. Our counsellors have seen thousands of budgets and spending plans. Speaking with us is always free, confidential, and non-judgmental.

Related Topics

pay debt bills quickly canada

Tips to Pay Debt Faster

A fatal flaw when paying off debt and bills is forgetting to budget. Here’s why and what to do instead.

budgeting guideline

Budgeting Guidelines

A breakdown of categories for your budget and how much to spend on each type of expense.

signing agreement with advisor

Credit Counselling

Are you curious about what credit counselling is or how it works? Here’s what you need to know.


Was this page helpful?

Helpfulness of page - face 1
Helpfulness of page - face 2
Helpfulness of page - face 3
Helpfulness of page - face 4
Helpfulness of page - face 5