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Personal finance

How to make a budget: A step-by-step guide

July 30, 2025

No matter what your finances look like, making a personal budget or family budget is always a good idea. Budgeting can help you reduce your financial stress, avoid unpleasant surprises and stay motivated to achieve your financial goals. Saving up for a down payment? Dreaming of an around-the-world trip? Thinking of going back to school? Retiring early? A monthly budget can help you save up enough extra cash to reach these goals.

But it can be hard to know where to start, which is why we’ve broken it down into 8 simple steps. Start by getting a clear idea of your monthly income and expenses, then choose a budgeting system (we’ve got some options below!). Finally, you’ll track your spending and adjust as you go along.  Let's take a look! 

 

Step 1: What you need to create your monthly budget

The numbers don't lie. That's why it's important to use real numbers—not guesstimates. Save yourself time and make your life easier by gathering these types of documents before you start:

  • Pay stubs or proof of income
  • Bank statements and credit card statements
  • Monthly bills and other expenses
  • Receipts for cash payments you can't track otherwise 

Step 2: Calculate your monthly income

If everything you earn shows up on your paycheque, it's easy. Just use that number. If you’re receiving a pension or other retirement income, add all those income streams up. And if your pay fluctuates—for example if you have freelance income or are paid hourly—pick a number that realistically represents what you bring in each month, on average.

You should also include any other sources of regular or occasional income, like child benefits from the government, child support, spousal support, dividend payments, etc.

Another very important point: always use your net income (that’s what you get after taxes), not your gross income. This will help you make the most accurate budget possible. 

Step 3: List your monthly expenses 

To budget accurately, it’s important to track all the money that comes out of your accounts each month.

The easiest way to do that is to take a look at your bank and credit card statements at the end of the month. Tracking the cash you spend is a little trickier, but you can save your receipts to make it easier.

There are two main spending categories to take into account: fixed and variable. 

Fixed expenses

Fixed expenses stay more or less the same month to month. They’re easy to deal with if you break them down into smaller budget categories. Common fixed expenses include:

  • Housing (rent, mortgage payments, hydro/electricity, natural gas, etc.) 
  • Subscriptions and memberships (internet, phone, streaming services, gym, etc.)
  • Transportation (public transit passes, car insurance, etc.)
  • Prescription medication
  • Home and auto insurance  
  • Personal or student loan repayments
  • Savings (RRSP, TFSA) 
  • Daycare expenses

Variable expenses 

Variable expenses, on the other hand, can change from month to month. They can be harder to predict, but they're still an important part of your budget. Common variable expenses include: 

  • Groceries
  • Transportation (gas, car repairs, etc.)
  • Eating out
  • Entertainment 
  • Special occasions 

Things can get tricky when it comes to the unexpected expenses that pop up from time to time. Since you rarely have to think about them, it may be tempting to dip into your savings or pay on credit to make ends meet. Instead, it’s a better idea to set aside some money each month to cover these types of "irregular expenses" as they arise: 

  • Vet bills
  • Driver's licence renewals
  • Car inspection fees
  • Haircuts
  • Bike maintenance   

Don't forget to include a little fun money 

Remember that budgeting doesn't always have to mean cutting out all the fun. It's ok (even necessary!) to build in a little wiggle room for things that make you happy. When you're calculating your expenses, don’t forget to include a little extra for new clothes, a nice birthday dinner or holiday gifts. Go ahead. Treat yourself!

Need a little help getting started? Try our budget calculator to set your priorities, prepare for emergencies and reach your financial goals. 

If you’re a member of a Desjardins caisse or credit union, Alvie’s Monthly activity feature and Budget tool can help give you a clear picture of your income and spending, right inside the Desjardins mobile services app. Your expenses can be grouped into categories like Home, Transportation, etc. By setting up your budget in our mobile app and using Alvie's handy money tips, it will get easier to set goals and stick to them.

Step 4: Set spending limits and financial goals

Once you have a better idea of what your cashflow looks like, you'll be a position to see where you can cut costs if you need to, and where you can save to reach your goals.

It’s a good idea to set spending limits for categories where you’re likely to overspend, like eating out (grabbing a breakfast sandwich on your way to work or going out for lunch with the team) or online shopping, eating out (grabbing a breakfast sandwich on your way to work or going out for lunch with the team) or subscription services, like gaming or streaming.

And before you buy anything, it's always a good idea to wait a day or two. Do you really need those noise-cancelling headphones as badly as you thought you did?

Once you've reined in your spending, you'll be in a better place to be able to start saving for things that really matter to you. It's helpful to think of short- and mid-term goals, as well as long-term goals here, because all of them are important.

Your short- and mid-term goals are your quick wins. These are realistic goals that can be achieved relatively quickly. For example, an emergency fund, a trip to France or that shiny new laptop.

Saving for long-term goals won't give you an immediate endorphin hit, but it's how you work towards big dreams, like buying a home, paying for your child's education or saving for retirement.

Step 5: Choose a budgeting method

There's more than one way to build a budget! But you don’t need to reinvent the wheel. Try one of these 3 popular budgeting methods to help you manage your monthly income, reach your savings goals and even pay off your debts: 

The 50/30/20 rule

With a 50/30/20 budget, you split your net income into three main budget categories:

  • 50% is for needs 
  • 30% for wants
  • 20% for savings and debt repayments beyond minimums

No matter which method you choose, it’s a good idea to try to save 10% to 20% of your income each month. Try to put enough into an emergency fund to cover 3 to 6 months of living expenses in case life throws you a curveball.

Zero-based budgeting

A zero-based budget is a totally different animal. With this method, you basically assign a specific purpose to every single dollar that comes in: rent, groceries, transportation, savings, fun stuff, and other essentials.

By the end of the month, your income minus your expenses should equal exactly zero. But that doesn't mean you just spend everything! It just means that you've accounted for every cent—including what’s in your savings accounts. 

Envelope budgeting 

With the envelope budgeting system, you use paper envelopes (virtual envelopes work too!) for each spending category. If you earn $2,500 a month after taxes, you might decide to allocate $500 to groceries, $300 to transportation, $150 to going out, $100 to personal purchases, and $50 to your hobbies. Once you've done all that, you'll be able to see how much you have left and whether you can afford to spend more—or not!

Do you and your partner share your finances? If so, you can make a shared budget and either pool your money or keep certain expenses separate. It's all up to you. 

Step 6: Track your spending

Tracking your actual spending helps you stay focused on your financial goals. There are a lot of different ways to do it, but the goal is always the same: see where you might be overspending so you can plan better for the future.

It doesn't matter if you prefer a budget spreadsheet, a budgeting app, dashboards or even a good old pencil and paper. The important thing is to choose a budgeting tool that works for you, so you'll actually use it.

Step 7: Adjust as needed

Your budget isn't set in stone; it changes as your needs change. You might even call it a living document. So rather than take a set-it-and-forget-it approach, compare it to how much you actually spend each month. This will help you identify gaps and make changes before they become a problem.

By making adjustments and cutting out non-essential expenses, you'll be in better able to deal with unpleasant surprises, like if your laptop dies in the middle of the semester or your washing machine conks out. Because one big expense that you haven’t planned for can throw your budget out of whack.

And these kinds of surprises can lead you into a vicious cycle, where it’s hard to get out of debt. For example, unexpected legal fees or a pricey sewer pipe replacement could force you to borrow a significant amount of money just to make ends meet. This could put you in a difficult financial situation, so it can be helpful to learn more about how to manage debt.

Step 8: Stay on track

Sticking to a budget is like any other good habit. The more you do it, the more it just becomes something you do. And there are lots of things you can do to make it more likely you'll stick with it.

Set a reminder to check in with your finances every week or every month. And don't downplay small successes: every penny counts! If you manage to save a bit of extra money, it’s totally worth celebrating in whatever way makes you happy. 

 

Common budgeting mistakes to avoid

Nobody's perfect. We've all made our share of mistakes when setting up a budget...

  • Not keeping track of where your money is going
  • Underestimating how much you spend
  • Creating an ultra rigid budget with no breathing room
  • Failing to set up an emergency fund
  • Forgetting to add a line item for fun!

If you find yourself getting stressed about being able to stay on top of your bills, don’t be shy to ask a professional for help. That's what they're there for! If you’re a member of a Desjardins credit union or caisse, an advisor can help you set up a financial plan that's right for your situation. 

Tips to stick with your budget

It's a lot easier to stick to your budget when you make things simple. One great trick is to pay yourself first. Set up automatic transfers from your chequing account to your savings account on payday, and you'll be saving without even thinking about it.

You can set up automatic bill payments too, like your cell phone bill, to avoid late fees. Just make sure you have enough in your account on the due date to cover the bill.

If you find it hard to stay motivated, set clear goals for yourself and do your best to stick with them. Talk about what you're doing with someone you trust or track your progress in a journal to keep yourself motivated and stay on track.

Another way to stay focused is to seek out inspiration outside of yourself. Look for budget influencers who share their stories on podcasts or social media. Stay focused on the "why" and remember: Your budget is there to work for you. Its job is to help you, not restrict you.

With all that, you should be well on your way to financial empowerment. Your budget is the first step on your journey to financial wellness