Island Savings

How to Budget: The Complete Guide



There are three questions that a successful budget should answer:

  • How much do you make?
  • How much do you spend?
  • How much is left over?

A budget gives you knowledge, insight that you can act on.

You can have the fanciest looking budget on this side of the 21st century, if it doesn’t help you answer those three questions, it is not doing its job.

Let’s a look at how to put together a simple monthly budget that you can stick to and that will help you reach your financial goals.

What you'll need: it’s best to use a spreadsheet program or your favourite budgeting tool. Remember, MoneyView™ is available for free to our members and can help you see where you’re spending your money so you can quickly fill in that expense column. Not a member? Open your Simply Free® Chequing Account and get started with no fee banking for FREE.

Add up your income

For a simple budget, it’s easiest to look at your net income, which is the amount that gets deposited into your account every paycheque after taxes and other deductions have been taken off. Note your pay frequency and your pay days.

In the example above, John gets paid $1,385 biweekly (every other week), which adds up to $3,000 a month (1,385 x 26 weeks per year / 12 months).

Expert tip: As you build out your budget, take out a calendar and mark down your regular payments and deposits. This will help you always be aware of when you have money scheduled to come in and go out. .

If you’re doing your family budget, add in your partner’s pay as well.

Sara gets paid semimonthy (twice a month). Her pay days are set to calendar dates (eg. 15th of every month and last day of every month) whereas John’s pay days are every other Friday.

Don’t forget to include other sources of income you might have, such as the universal child benefit.

Add it all up and you have your total month’s income.

List your expenses

Next, list all your expenses. When do these payments come out?

Expert tip: Sometimes, your automated expenses won’t happen over the weekend or on stat holidays so if your last statement said that a payment came out on the 27th, it’s possible the regular expense date is actually the 23rd of the month. Check back and compare with the previous month just to be sure. .

  1. Start with your bills, anything that is critical
    • Mortgage/rent payments
    • Hydro
    • Natural gas
    • Car insurance
    • Life insurance
    • Home insurance
    • Property taxes
  2. Add your loans and credit card payments.
    • Car loan
    • Student loan
    • Line of credit
    • Credit card bill
  3. Add in the bills that you’re on contract for. These are regular payments that you make for spending that is more discretionary than those listed above but that you can’t cancel without incurring some kind of penalty.
    • Cell phone
    • Internet/cable
  4. Add on your other subscription services. These can be cancelled at any time, they tend to have low monthly costs so they seem like really great deals, but once you start adding them up, they can easily eat a hole in your budget. Plus, they offer easy upgrade solutions (add an extra screen for $2, switch to a family plan for only $5 more…) that are meant to feel so reasonably priced they’re no-brainers.
    • Netflix
    • Hulu
    • HBO
    • Apple Music
    • Crave TV
    • Spotify
    • Amazon Prime
  5. Add any annual payments that you may otherwise forget about and divide them by 12
    • Property taxes
    • Club membership
    • Fishing license
  6. Finally, add your other categories. If you’re setting your budgets for the very first time, use a tool like MoneyView™ to take a look at how much you spend in each category every month on average. It’s an incredibly useful way to leverage your past behaviour in order to create an accurate, personalized budget.
    • Groceries
    • Gas
    • Clothes
    • Entertainment
    • Eating out
    • Donations
    • Care repairs

When you make it through listing all your monthly expenses, add them up to get your total monthly expenses.

Calculate the difference

When you take all of your income from #1 and subtract all of your expenses from #2, you end up with a number.

If that number is positive, congratulations! You have a net positive budget.

If that number is negative, don’t panic. Go back to #2 and see if there’s anything you can cut or trim. You don’t need a clothing budget and an entertainment budget and an eating out budget every month.

If the number is still negative, then you need to find a way to increase #1.

If you’re struggling to balance your budget, our financial experts are here for you! We are passionate about using our knowledge and expertise to help our members thrive. And sometimes, you just need another pair of eyes.

Once you’ve determined your surplus, you are able to start tackling goals. But before you do, you need to take a look at the timing of your cash flow.

Map out your cash flow

The next step is to put all these numbers on a calendar. This allows you to do several things.

First, it will allow you to visualize the month’s flow of money. You will get a clear sense of when you have money coming in and when you have money going out in a way that a simple list doesn’t quite capture.

Second, when you see how your income and expenses add up day by day, you discover the times in the month where cash flow is a bit tighter. This insight helps you prepare for it.

John and Sarah have a monthly surplus of $3,076. However when you look at their cash flow calendar, you can see that their account doesn’t hit positive until halfway through the month.

Let’s say that John and Sara aren’t aware of their cash flow. They just know that their free-to-spend number is $3,076. They might decide to take a trip to Costco and stock up in the first week of the month. Maybe they even have insight that they don’t have any bills in that week, so they think that’s a good time to drop $500 on groceries. What would happen is that before they get their first paycheque of the month, they have a negative cashflow of $3,000.

If John and Sarah don’t plan for a front-end heavy month, they could find themselves in unnecessary trouble.

Cash flow will change from month-to-month, especially in cases like John and Sarah’s where one gets paid every two weeks and the other twice a month.

Look at your cashflow at least a month in advance so you can make informed decisions ahead of time.

Expert tip: one way to balance out an uneven cashflow is to contact your vendors to try and arrange for a more evenly distributed payment plan. Most will be amenable and that could help alleviate the burden.

Set a goal (or several)

Now that you know how much money you have coming in and going out and how much money is left over and now that you understand when that money is moving and when in the month money is a bit more tight, you are able to create a strategy that puts that information to good use and takes steps towards achieving your goals.

How do you pick a goal? There are two ways. The first is to answer the question: What keeps you up at night?

The second is to answer the question: What are your dreams? If money were not an issue, what would you do?

Possible goals:

  • Save 15% of income for retirement
  • Go to Hawaii next summer for ten days
  • Max out the government’s RESP grant
  • Pay off your debt
  • Travel the world before retirement
  • Retire at 40
  • Pay less taxes
  • Reno your kitchen
  • Save up 3 months emergency fund

When you choose your goal, make it specific. Set a dollar amount and a time period.

Let’s say you’ve got $30,000 in debt, with an interest rate of 6% that you want to pay off in two years. That’s a monthly payment of $1,330. You’re already paying $330 a month, which means that if you can squeeze out $1,000 from your free-to-spend stash, you will meet your goal.

Handy tools: Are you trying to figure out your monthly payment so you can pay off your loan faster? Check out our loan calculator.

You might need to spend less on groceries or gas or on entertainment. Or if those amounts are at the lowest, maybe you can cut one of your bills and redirect that money towards your goal or pick up a side hustle for extra income.

If none of these options are possibilities, then your goal may be unrealistic, in which case, you might want to extend the time in which you’ll pay off your debt.

And that is fine!

Expert tip: with a budgeting tool like Island Savings’ MoneyView™, you can not only easily track your expenses and see your spending trends, but track your net worth. Ultimately, your goals should align to increase your net worth so as you track that figure month to month and year by year, you’ll want to see it grow.

Pay yourself first

Once you’ve set your goal, go into your online banking and create an automatic payment. Automating your payments is one of the best ways to prioritize your goals. Then go back up to steps 2 and 3 and update your expenses and your free-to-spend number.

When you automate your savings in the same way you automate your expenses, you are making your goals a priority. Now achieving your goals is as important as your rent. Or as your Netflix subscription, and for many Canadians, that’d be an improvement.

Track your progress regularly and you’ll see how exhilarating budgeting can be.

When you’re paying off a large amount like $30,000 in chunks of $1,330 at a time, it can be hard to see the progress you’ve made and that can lead you to discouragement and then to giving up.

But within just 4 months, you’ve paid off over 1/6 of that monster debt. So find a way to visualize your progress (Pinterest can be a great resource) and don’t be afraid to reward yourself for achieving certain milestones.

Budgeting does not have to be serious work that you approach with sleeves rolled up and a furrowed brow. Make it engaging, enjoyable and fun. You’ll be more likely to stick to it.

Book a financial snapshot

Creating a budget is easy. Understanding what to save for, when to save for it and how to best manage your cash flow can be trickier.

Luckily, you don’t have to do it alone.

Book a Financial Snapshot at your local Island Savings branch. Our team of financial experts can walk you through your financial picture and send you on your way with a clear picture of where you are, where you want to go and how to get there.


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We encourage you to visit an investment advisor at any of our branches for more advice on how to reach your goals!