Creating and using a budget is one of the most practical and effective ways to take control of your money. In this guide, we’ll share personal budgeting tips for Ontario residents that make it simple to estimate your income and expenses, prioritize your spending, and achieve your financial goals. Whether you’re trying to pay off debt, save for something big, or just want to stop wondering where your paycheque goes, these five steps will help you build a budget that works.
In this article, we’ll guide you through a simple five-step process to build a budget from scratch. And you don’t need any fancy software to get started. We’ll show you a free budgeting template you can use today to stay on top of your spending and get the most out of your money.
Personal Budgeting Tips Ontario: What is a Budget and Why It Matters
A budget is a financial tool that helps you manage your money. At its core, it’s a plan for how you’ll spend your money each month. It helps track your income, expenses, and savings in a structured way to get the most value out of every dollar you earn. With a budget, you can make informed decision about your spending and make steady progress toward your financial goals.
When you follow a budget, you can
- Eliminate wasteful spending
- Prepare for unforeseen expenses
- Build or maintain a healthy credit score
- Determine how much to save for retirement and other long-term goals
- Figure out whether you can afford to buy a home, car, or other big-ticket item
- Calculate how much debt you can afford to carry
- Make financially-savvy purchases
- Free up money for the things you enjoy
- Stay motivated and feel more in control of your financial future
Now that you understand the benefits of having a budget, let’s explore how to make one.
Creating a Budget in Ontario: The Five-Step Process
Below, we’ve put together a five-step plan for creating a budget for your household. Throughout this guide, we’ll be referencing the budgeting template from the Office of the Superintendent of Bankruptcy (OSB). It’s a tool that we use ourselves at David Sklar & Associates during credit counselling sessions we provide to your clients. We highly recommend checking it if you’re new to budgeting.
Step 1: Calculate Your Monthly Income (Ontario Budgeting Example)
List your total income that you receive each month. Start with your job, which includes your regular paycheque and commissions, tips, and bonuses. Other examples of income sources to include are interest, dividends, rental income, child support, and government benefits. Also, include your side hustle income if it’s something you do regularly.
Be conservative when estimating irregular income, such as commissions and side hustles. By overstating it, you risk creating a relaxed budget that encourages overspending. Check past bank statements to calculate your average monthly income from these sources. Only include the income you’re reasonably confident you’ll receive.
Here’s an example of the calculation of income using the OSB budgeting tool:
Step 2: Track and Classify Expenses (Budgeting in Ontario)
The next step is to figure out your expenses. To make things easier and transparent, classify them into three categories:
Fixed expenses. These are expenses that you pay for regularly, such as rent, mortgage, fuel, electricity, cell phone bills, debt payments, and childcare expenses. They stay relatively consistent from month to month.
Foreseeable variable expenses. These are periodic expenses that show up less frequently but are still expected. Some examples are property taxes, vehicle registration, haircuts, clothing, and dental work. You can also include food here if your spending varies significantly each time you visit the grocery store.
Unforeseeable variable expenses. These are periodic expenses that are hard to predict, but you expect to pay for them eventually. Some examples include vacations, vehicle repairs, home renovations, and medical bills.
Fixed expenses are a cinch to account for, while variable expenses are more challenging to determine. The solution: estimate your variable costs by examining your past bank statements. Figure out how much you spent in total during the past year. Then, divide the amount by 12 to get the average monthly cost.
Smoothing your periodic costs this way will show you how much money you need to set aside each month to pay for them. Otherwise, you risk finding yourself with a shortfall when they come up.
Below is an example of a list of monthly expenses using the OSB budget planner.
After noting all your expenses, add up the money you put towards savings. This category includes funds in your regular savings account, tax-free savings account, or an emergency fund stashed away in your sock drawer. While not an expense, savings are essential for financial security, so always include them when reviewing you monthly spending.
Step 3: Determine your priorities and goals based on your net income
Now that you know your income and expenses, it’s time to figure out your priorities and goals. To do this, you’ll first need to calculate your net income.
Take your total expenses and subtract them from your total income. If the number is positive, congratulations—you have a surplus! This is money you can set aside for investment, pay down debt, or spend as you see fit. If the number is negative, you have a deficit, so you’re spending more than you take in. But that’s okay—with a proper budget, you can turn things around.
Now it’s time to decide on your goals and priorities, which is the more compelling and thrilling part of budgeting.
What do you want to achieve—and how will you do it based on where you stand financially today? Do you want to retire at 55? Are you keen on ditching your apartment and buying a home in the suburbs? What about building a cushy emergency fund?
Consider your priorities, too. For example, maybe you enjoy taking weekly art lessons. Or you’re committed to eating organic food and willing to cut back on expenses elsewhere to make it happen. Do you need lightning-fast internet for your remote job? Are you okay with giving up your car and rely on public transportation to get around?
Once you know your goals and priorities, use them as the basis for your budget, together with your net income. Calculate how much of your monthly income you’ll need to allocate to necessary expenses and achieve your desired lifestyle. Don’t forget to set aside some of your funds for savings, which is vital for financial stability, security, and peace of mind.
Aim to create a balanced budget (or close), as shown below, which is where the difference between your income and spending equals zero.
How to resolve a budget deficit
What happens if you have a deficit? In that case, you’ll need to make adjustments to your budget by cutting back on spending. Where you make these sacrifices is up to you. But it’s best to start by cutting back on your wants (restaurant meals, travel, jewelry, streaming subscriptions, etc.) as these expenses are not essential for living. Look closely at your spending routine to see where you can make improvements.
Still, it’s worth scrutinizing your essential day-to-day expenses—you may be overpaying and not know it. For example, there are many household bills you can negotiate to free up more cash.
In some cases, slashing costs won’t get you the budget you envision for yourself. The key is to set your realistic goals based on your income and expenses. Avoid impulse purchases and borrowing money to fund a lifestyle you know you can’t afford.
Step 4: Implement your budget and track your progress
Congratulations—you’ve just created your first personal budget! Now, it’s time to put it to work in the real world. To do this, you’ll need to devise a way to track your spending, income, and savings.
We recommend dedicating some time each week to recording your income and expenses. This routine will help you learn where your money is going and whether you’re following your budget. Luckily, getting a hold of your transactions is easy to do if you have access to online banking.
The OSB offers an income and expense tracking worksheet you can use to record your transactions. Alternatively, you can use a spreadsheet, your bank’s budgeting tool (if it provides one), or just a pen and paper. You can also try one of the many available budgeting apps. These apps sync with your bank account, categorize your expenses, and provide you with real-time data about your spending habits.
At the end of each month, compare your actual spending with your budget to see how you did. Do you stick to your budget? Take note of areas where you fell short and strive to improve the following month. Measuring your progress each month will help you stay on track and make steady progress toward your financial goals.
Step 5: Stick with it and make adjustments as needed
Creating the ideal budget—and sticking with it over the long run—takes time, effort, and patience. Keep tracking your spending each month and work to break bad spending habits. Managing money will gradually become easier as you become financially savvy, discovering ways to minimize expenses, maximize income, pay off debt faster, and more. You’ll start seeing positive results over time and gain confidence in handling your money.
Of course, don’t hesitate to tweak your budget over time if it no longer matches your needs, goals, and priorities. As your income grows or you add new expenses to the mix, adjust your budget as necessary to accommodate the changes.
The bottom line on creating a budget
By following the five steps in this guide, you’ll have a practical plan for managing your income, tracking your expenses, and working toward your financial goals. Whether you prefer a traditional spreadsheet or a more hands-on method like the cash envelope system, the key is to find a budgeting style that works for you and stick with it.
One common obstacle people face when creating a budget is massive debt payments. These obligations can consume money that would otherwise go toward living expenses, leisure activities, and savings. If you’re struggling with unaffordable debts, a Licensed Insolvency Trustee (LIT) can help you explore your options for reducing them. That way, you can free up more income for the things that matter.
At David Sklar & Associates, we’ve helped thousands of Canadians regain control of their finances through formal debt relief solutions like a consumer proposal and bankruptcy. As part of these programs, we offer credit counselling sessions where we show you how to create an impactful budget for your household. Contact us today to book a free, no-obligation consultation—you deserve a fresh start!
