My Simple Steps to Create a Budget and Save Money: A Guide for Canadians

This blog post is a compilation of a series of posts I did over at my Facebook page Wallet on a Diet Canada.

Each post covers the steps on how to track your spending, create a budget, trim your budget, and finally how to stick to your budget.

Post #1 -Track Your Spending to Create a Budget

Before you make a budget you need to first sit down and review your last 3-6 months of expenditures. This is the first and most time-consuming step. It is also the hardest one to do.

It is hard because tracking your spending is the process that forces you to face your spending habits and spending history. It’s the process that will make you realize that you spend more on online shopping each month than you do on your rent or mortgage.

That is a drastic example but it reiterates that you might be unpleasantly surprised at how much you are spending every month instead of putting your money towards the things that matter most to you. It’s the process that forces you to face the reality of your financial picture.

But don’t worry. It’s not all doom and gloom. Because the light at the end of the tunnel is that you will know what changes need to be made to have more control over where you want your money to go.

How Do You Track Your Spending?

You get an expense tracker (see below) and you look at your bank statements from all of your accounts including credit cards.

Your spending will be divided into two different types of expenses. Fixed expenses and variable expenses.

Fixed expenses are expenditures that remain constant from month to month.

An example of fixed expenses are:

Mortgage or rent payments
Car payments
Insurance such as car, life, homeowners, or renters
Subscriptions

Variable expenses are expenses that change from month to month and are dependent on your spending habits.

An example of variable expenses are:

Groceries
Gas
Eating Out
Entertainment
Personal care

When you track your spending you go over your bank statement for example the month of February and you write down every single transaction.

On your expense tracker your will list:

the date you spent money
the account you used
the description such as where you bought the item
The category such as groceries or subscriptions
The amount you spent

After you record every single transaction from all your accounts for a particular month you then total each category.

For example, you will add up every single transaction spent within the category “groceries” or “eating out” and write the total down.

Same as the total you spent on subscriptions, gas, insurance, etc.

Now you know that for February you spent x amount on “eating out.”

When you track back a few more months such as January and December and you total what you spent each month on “eating out” you now know on average how much you spend within that category.

Now you see your spending habits over the past three months and the total you spent. And now you get to decide whether or not you like that total.

And this is when you choose whether or not something needs to change. Do you spend way too much within that category or are you comfortable with what you spend? Would you like to see that money go somewhere else?

The same goes for fixed expenses such as monthly subscriptions. Often we look at these as separate charges. But when you lump them into a total amount you might not like that number. And you might make a change with what subscriptions you want each month.

Post #2 – How to Create a Budget

Once you are done tracking your expenses you can now create a budget.

One of the reasons you need to track your spending and expenses to create a budget is to know what amount you spend within each budget category.

For example,

You tracked your spending over the last three months and you discovered that on average you spend $1200 per month on groceries.

Now you can input that amount into your budget.

Take the total of every fixed and variable expense from your expense tracker totals and input them into your budget.

Now, what does a budget look like?

A budget is a tool to help you manage your income and expenses over a set amount of time. In this case, we will be creating a monthly budget.

You can break down how to create a monthly budget into three steps.

Add up every single monthly income amount that you take home after taxes.
Divide your expenses into categories and add them up.
Subtract your expenses from your income.

Your expenses will be divided into fixed and variable expenses.

Your fixed expenses are rent/mortgage, car payments, subscriptions, insurance, etc.

Your variable expenses are groceries, entertainment, eating out, personal care, clothing, etc.

You will know exactly what you spend in each of these categories by tracking your spending.

Once you total your income and total your expenses and subtract your expense total from your income total you will know exactly what you have left over.

There are a few scenarios that can happen when you first create a budget.

You discover that your expenses exceed your income.
You discover you have nothing left over for savings, debt, or for anything extra like a vacation.
You have extra money that you now know you can put somewhere else such as savings, debt, investments, or a fun trip.

Creating a budget creates a visual picture of your financial situation.

Below you will see a link to a Google view-only spreadsheet of a basic budget.

When you view the document you will see how fixed and variable expenses are separated and also subcategorized.

The budget includes both add and subtract formulas you can view if you want to create your own google spreadsheet budget.

They are formulas to add up fixed and variable expenses and your income and then subtract the total expenses from your income total.

The numbers included in the budget are completely off the top of my head and in no way depict any real numbers for any real person.

I enjoy using a spreadsheet for my budget as it allows me to play around with numbers to see different scenarios of how my budget can work.

Budget Spreadsheet

Post #3 – Trim Your Budget

Now that you have created a budget you now have an idea of your financial picture.

Your financial picture might tell you that you are spending more than you earn or barely covering your bills. Or, that you have some money left over but would like to have more to put away.

Whatever your financial picture, the next step is to cut down on your expenses.

Trim Fixed Expenses

First, go over your fixed expenses. How much are you paying on insurance, monthly subscriptions, rent, cell phone, or car payments?

Is there a way that you can lower any of these bills?

Cutting down your subscriptions is an easy way to get started. Go over your list of monthly and yearly subscriptions and evaluate how much you need them. It’s super easy to cancel subscriptions such as Netflix or Spotify. It’s just a click of a button.

Many people have two cars and two car payments. Is there any way you can go down to one car? Can one of you bike or take the bus to work?

Shopping around for different insurance providers and getting quotes from multiple companies is a great way to compare how much you pay each month. Switching companies might help you save a good chunk of money.

These are just a few examples. There are so many ways to cut down on fixed expenses. Do your research and ask around how your friends and family handle their monthly bills.

Cut Down Variable Spending

Next, cut down on your variable spending.

This is my favorite area to focus on. One of the biggest expenses in variable spending is your grocery bill.

Being mindful of your grocery bill is a great way to save hundreds of dollars a month.

By tracking your spending and setting up a budget you know on average how much you spend on groceries each month.

Don’t go crazy and slash that amount in half. But see if you can shave off a couple of hundred dollars from your monthly grocery budget.

It takes courage to lower your monthly spending. Especially on food. But you will be surprised how much you can save when you are aware of what you spend each week on your groceries.

And when you put in the effort to budget for your groceries, have a weekly limit on what you can spend, and then follow a plan to save on food you can easily save a ton of money.

Another great way to cut down on variable spending is to eat out less. Eating out becomes less of a temptation when you are organized in your grocery shopping.

Strategies such as meal planning and stocking up on sales help you feel like there is more food in your home and less desperation to order pizza or head to Mcdonald’s.

And when you make the concerted choice to eat out less you will notice how often you do it and want to change. Especially when after tracking your spending you see how much of your hard-earned money goes to fast food.

Variable expenses such as groceries, eating out and online shopping can be crippling to your financial lifestyle.

Often it is the day-to-day spending that hurts your budget. Because it is the spending that is based solely on personal habits and the ability to know your limits.

A Budget Helps You Have Limits

A budget is a great way to know your limits when it comes to how much you can allow yourself to spend each day, week, and month.

Take the time to lower some of the amounts in your budget.

Tracking your spending helps you see what you spend each month and writing a budget helps you align it all into a nice visual.

And then trimming down those amounts will help challenge you to spend less.

Post #4 – How to Stick to a Budget

Now that you have trimmed down your expenses you need a way to stay true to your budget so you don’t overspend.

Everything comes full circle back to tracking your spending.

You initially track your spending to get a sense of your spending habits and history. You go back at least three months to get a good picture of your finances.

You then create a budget based on the totals you discovered in each budgeting category from tracking your expenses.

You take those totals, evaluate them, and decide if you need to “trim” them down to better stay within your means or have more money to pay off debt, or put more towards savings.

Now you need to track your spending once again. But this time on a daily and weekly basis.

Track Your Spending on a Daily/Weekly Basis

The budgeting categories that you need to track on a daily and weekly basis are your variable categories.

Your fixed expenses such as rent/mortgage, insurance, and car payments do not need to be tracked. They will automatically come out of your banking account every month. Their amounts are stable and remain the same from month to month.

But your variable expenses such as groceries, eating out, entertainment, and personal care are the expenses that are based solely on how you choose to spend your money.

They are based on your spending habits and are often tied to your emotional state of mind. It’s amazing how much money habits are tied to our mental and emotional state.

And so our variable categories need to be kept in check.

Keep Your Spending in Check

I break down my variable categories into weekly amounts. I have my monthly budget and then I break them down into a weekly budget.

For example, my grocery budget is currently $800 a month. Which means my weekly budget for groceries is $200 per week.

Another example is entertainment. Let’s say I budget $200 a month for entertainment which includes family fun. That means we have $50 a week to spend on fun.

Or, eating out. If I budget $160 a month for eating out then I can spend $40 a week on any food that is from a restaurant or fast food place.

It’s all about knowing your limits and then sticking to them.

Tracking your variable spending on a daily and weekly basis can easily be done just by writing your spending down in a notebook.

Every week you can list your categories and the weekly amount you can spend. Every time you or your partner spend from that category write it down and subtract it from the total. When you’ve used up that amount for the week you know you have to stop spending until it’s a new week with a new total.

This can also be done in a spreadsheet. Where you and your partner both have access to the spreadsheet and can jot in from your phone whenever you spend money.

Another way is the cash envelope system. You have an envelope for each variable category and inside the envelope, you put in cash. The cash is the exact amount you have to spend in each category for the week. Once the cash is used up you have to wait until the following week to refill them.

I don’t love the cash envelope system because so much spending these days is done online and making trips to the bank is super inconvenient. But if you struggle with your spending it might be a good idea to do it at the beginning of your budgeting journey until you get into better spending habits.

You can also use budgeting apps. But I’m a big believer in writing things down. It helps you hold accountability and brings greater awareness of every single time you spend. When an app is doing all the work for you it’s easy to get complacent and lose your self-discipline.

I like to have a mix of writing down my spending and using cash.

When it comes to my grocery spending I write down every single time I purchase during the week in my notebook.

But when it comes to fun money for my husband and I we each get cash for the month to spend as we please. That way I can hand the cash over to my husband and tell him to go have fun.

If he uses it up before the end of the month he knows he has to wait until the next month for a new cash allotment. It keeps me from getting upset or frustrated with him if he uses the debit card for his personal spending and loses track of how much he spent.

So you decide what works best for you! If there is a category you really struggle with and are constantly overspending you can do cash just for that category and then keep track of your other categories by writing them down or recording them in a spreadsheet.

I’ve gotten in the habit every few days to sit down and review our spending and subtract it from our weekly budget totals. It is liberating knowing what amounts we have to work with and what we have left over.

There is a sense of relief to know we are staying within our means and that if we work hard we can go under budget and put that extra money away towards debt or something extra fun for the family.

It does take some time and work but it will lift a heavy burden off your shoulders. Spending blindly creates a sense of stress. And not being aware of what you have left over at the end of the month is disheartening and often disappointing.

There is nothing wrong with a little organization and accountability when it comes to how you spend your money.

Budget Tracker

This is the end of my budgeting series!

Comment below and let me know what have you found most helpful!