Skip to main content




How to build a budget in four steps

Small clock icon 5 minute read


Two women of the Millennial Generation are taking a picture of a restaurant receipt after eating lunch at a local sushi restaurant. The woman is using her bank's app to balance her monthly budget.

Take a moment to reflect on your biggest aspirations. Is it visiting a far-flung destination? Paying off student loans? Or putting a down payment on your dream home? Your success in achieving them ultimately hinges on how well you do one thing: budget.

As inflation causes everything from grocery to gas prices to climb, budgeting has become more important than ever. Still, the concept can feel daunting for many people. So, whether you’re creating one for the first time or need a refresher, here’s everything you need to know to start or get back on track with your budget.

What is a budget?

A budget is a plan for how you will spend your money. It essentially requires you to compare your expenses to your income — and take steps to ensure that incoming money doesn’t surpass/exceed the outgoings.

When should you start, or update, your budget?

Your needs change throughout your life. The best time to start budgeting is when you start your first job. That might be a summer job when you’re 16 but starting early sets you up for success in the future. Over time, your budget should be updated anytime you:

  • go through big life changes (ie. going back to school, getting married, starting a family, moving)
  • start a new job, or get a raise
  • notice a significant increase in your expenses (ie. inflation, medical expenses, ect.)

How to start a budget

Like so many things in life, budgeting becomes less intimidating when broken into smaller, more digestible actions. With that in mind, here are four simple steps to help you embark on your budgeting journey.

Step #1: Determine your why

The first step in establishing a budget is to determine why you’re making one. Are you building a rainy-day fund for peace of mind? Or do you want to lessen the heavy burden of debt in your life? When you’re crystal clear on your reason for building a budget, it’ll be easier to stick to it.

Know what your why is? Write it down. “This budget will help me...”

Step #2: Pick your tool of choice

You’ll want to select a tool to help you track your expenses. You can opt for old-fashioned pen and paper, a simple budget spreadsheet, or a budgeting app (there are lots to choose from, some more complex than others.) However, there’s no right or wrong choice here. The key is to choose one that you’ll feel most comfortable with using on a regular basis.

Which budgeting method is right for you?

Step #3: Start building

Now that you’ve established both why and how you’ll follow a budget, you’re ready to roll up your sleeves and start building one.

First, calculate your net monthly income (that’s your income after deductions, like taxes, have been made). This includes the amount on your pay cheque, as well as any additional income sources, such as freelance work. If your income fluctuates each month, try to determine an average amount from the past several months.

Next, write out all of your expenses in a given month. This will consist of fixed expenses that don’t change (such as mortgage and rent payments) and variable expenses that do vary (like clothing and entertainment). It’s helpful to sift through bills and past bank and credit card statements to ensure you’re not missing anything. You can then put them into various categories, such as:

  • Food
  • Mortgage / rent
  • Utilities
  • Transportation
  • Personal items
  • Entertainment
  • Child care
  • Savings
  • Giving

Now, you’re ready to allocate a dollar amount to each category. If you’re unsure how to decide, there are a variety of proven budgeting methods that can help, such as the 50/30/20 rule. If you’re in a relationship, it’s important to talk to your partner at this stage to ensure you’re fiscally aligned.

Pro tip: Budgets don’t have to feel restrictive. Set aside small amounts for the things that bring you joy, and take the time to celebrate your wins.

How does your current spending align with your new budget? What changes will you need to make and are they sustainable?

Step #4: Pivot if needed

The final step is one of the most vital: track your budget. After you make a purchase, record it on paper, in your spreadsheet or through your budgeting app. Then, set aside time throughout the month to compare your expenses to your original budget.

Remember: The most thought-out budgets require fine-tuning. For instance, are rising food prices causing you to shell out more than you thought? Consistent budget reviews allow you to see if you’re overspending so you can trim costs in another category.

Consistency is an important part of creating a new habit. If you forget to track some transactions, don’t worry. Adopting healthy spending habits takes time. Just do it when you remember. You don’t have to have it all figured out from the get-go.

Does your budget work for your life? Can you make adjustments? How will you keep yourself on track?

The power of a budget

Budgeting is an important skill that empowers you to be more thoughtful in how you spend your hard-earned money. A solid one can give you peace of mind and help you realize your goals.

Call-out: Creating a budget can be easy. Simply determine your goal, choose a tool to track your expenses, and then categorize and assign a dollar amount to each one. And most importantly: track and adjust as needed.