Hello! If we haven’t met, I’m an accountant with a secret: for the first two decades of my life, I dreaded anything involving numbers. Math was always my worst subject! I even took basic calculus twice to make it through the accounting program.
(How the heck did I end up as an accountant, then? Great question, and a long story for another day.)
Why am I sharing my secret? Because if I can crush it as a public accountant for thirteen years, you can absolutely learn to create a functional, intuitive budget that helps you build your confidence in your financial decision-making.
If you’re new here, welcome! This article diverges from our usual topics because it’s financial literacy month in Canada, and I’m all about using my number-crunching powers for good!
On Debit This, Create That, I help busy professionals (re)connect with their creativity through reflections, tips, and encouragement inspired by my own experience balancing corporate and creative worlds. If that sounds intriguing, stick around! And I bet you’d love my monthly letter — click for creative kindling direct to your inbox!
If your eyes glaze over when you see numbers or the word “budget” makes you cringe, I wrote this post for you. Also, you’re not alone – many people have anxiety around numbers and budgeting, and I totally get it.
This won’t be a plug-and-play solution — it’s financial literacy month after all, so I hope you’ll walk away with some new ideas that you can think about in the context of building your own budget. I’m going to help guide you through the process of how one could build a basic budget, but the power is all in your fingertips.
That said, I do have a free Excel budget template that you can play with! You can get it here. It’s a simple, customizable tool for personal use, and please be mindful it does not constitute professional advice or services.
So, grab a cup of coffee and let’s settle into this whole budgeting thing.
You’re going to feel awesome having spent some time learning about this process. Understanding your financial world as you go about your daily life is rewarding in and of itself!
But maybe also plan to get yourself a little treat once we’re through. 🙂
Let’s go!
Simplifying the budgeting process
Things that make budgeting way more intimidating than it needs to be:
- Not knowing your financial goals upfront.
- Feeling overwhelmed from trying to track every single expense.
- Dealing with uncertainty (surprise expenses, bonus income, etc.).
- Time spent redoing the budget every month and remembering what expenses to expect. (How many birthdays again this month?)
First of all, let go of any perfectionism. The budget is meant to tell a story, and good stories reveal only the key information.
So we’re going to:
- Embrace approximation: Use round numbers, and think in buckets (or chapters).
- Get clear on your goals first: This gives your story context.
- Smooth out the cash flow: One budget to rule them all. (All the months, that is – and yes, that’s a Lord of the Rings reference, an epic fantasy notorious for being (debatably) overly detailed.)
If you fall in love with your budget spreadsheet, great — get as granular as you want! But honestly, even those of us who live and breathe spreadsheets tend to keep the budgeting process sweet and simple.
I think of budgeting in five steps (and forgive me, I had to stick with the storytelling motif):
- Establishing your financial goals – to give your story some context.
- Understanding your current income and spending – to establish the current setting.
- Creating a simple budget that reflects your average month – to track your plot line.
- Tracking your actual expenditures and comparing them to budget – to immerse yourself in the story while staying on-track.
- Refining your budget as-needed – to make sure we’re staying true to the journey as it unfolds.
Let’s break it down step-by-step.
Step 1: Envision your financial future
What are your financial goals? What are you directing your money towards? Let’s walk through some possibilities.
DISCLAIMER: I am not a financial advisor and the following does not constitute financial advice. This post is meant to spark ideas only. Speak with your accountant or financial advisor to walk through your specific financial circumstances and seek advice if needed.
I want to acknowledge that not everyone is able to save, and if that is you, your financial goals are valid and you can totally benefit from working with a budget! This section deals mostly with savings, but it’s not meant to be exclusionary.
Foundational financial goals
Here are some common areas that one might look into first. They aren’t glamorous, but they’re great for financial health!
Paying off high-interest debt. For many people setting out on their budgeting epic, this is a great place to start. One example is credit card debt, which often carries a high interest rate. The money going out to pay interest could be more productive elsewhere!
Saving for taxes. This may or may not apply to you. It’s important, but often forgotten! It’s ideal to set aside approximately what you’ll owe in taxes for April (in Canada and the US). If you’re employed, taxes are withheld for you (although it’s not always enough). If you’re self-employed, you must do it yourself!
Building an emergency fund. The experts out there have many rules of thumb for how much to keep in an emergency fund. A start might be to have $500 available in a savings account, ready to use if needed. But when I think emergency fund, I’m thinking about covering a sudden unpaid absence from work. In that sense, an emergency fund could mean saving one month, three months, or six months worth of your typical monthly expenses.
Saving for a comfortable retirement. If you’re able, you could explore registered retirement accounts as they often have tax benefits. Not everyone has a pension, and even if they do, it may not be enough to support a preferred retirement lifestyle. Retirement might be decades away, but future you will be grateful for the foresight!
Other financial goals
These are financial goals that can help you get to where you want to be, and they’re a little more personal in the sense that they should align with your values and what matters most to you. Of course, these are just ideas!
So, which financial goals are calling to you most?
Your next big purchase. Is a car or home on the horizon?
A big vacation, or a little joy fund. Plan it – I’m sure you’ve earned it!
Further education. Is career advancement on the roadmap? Or a complete career pivot?
A runway to start your business. That could look like seed money, a year’s worth of expenses, or funds to close the gap if you move from full-time to part-time employment while you work on it.
Peace of mind. To feel comfortable and confident in your financial landscape is a fantastic goal to have and a great reason to start a budget.
Okay, hopefully we’ve some ideas of what we’re doing all of this work for. On to the actual budgeting process!
Step 2: Get a lay of the land
This is perhaps the most tedious part, but stay with me because you’d probably only have to do this part once in detail, and then it’s just occasional, minor updates thereafter.
Tip: Save your sanity and don’t try to track everything to the penny. Round down for income and round up for expenses to be safe.
The lay of the land is our monthly net cash flow: how much cash is coming in and available to spend, and how much is going out (being spent).
What’s your monthly cash inflow?
You could include income from all sources, or you could focus on your main source of income.
Tip: If you have income that isn’t available for use, like income that is reinvested in a registered retirement account, you might exclude it.
One simple way to get your monthly cash inflow is to use your expected annual income, deduct the expected tax, and divide by 12. This is pretty on the money if you’re salaried.
If your income fluctuates month-to-month, you can still sum the total expected for the full year and divide by 12. Why? Personally, I don’t want to have to guess my income and update the budget for each month. It’s too much extra work! I’d rather just be mindful that in some months I’ll be net positive, and in others I’ll be net negative. So long as I’m trending in the right direction overall, I’ll feel comfortable.
And yes, even if tax is not withheld and I don’t have to pay instalments, I still like to exclude the expected tax on my income as not available for use to ensure it’s available come tax time. That’s another personal preference.
Find your monthly cash outflow
How exactly do you figure out what you spend each month?
Honestly, go through your statements. Yes, all of them! Chequing, savings, credit cards. Get a feel for your expenses.
Won’t that feel tedious and time-consuming? Sure, but remember you’re making magic here, and you won’t have to do it again in this much detail!
Here’s how I streamline the process a bit:
- I go through at least the last 3 months of statements to get a feel for the typical spends.
- Then I do a quick scan for the whole year to spot large annual items.
Alternatively, you could brainstorm everything you can think of that is annual.
Tip: There’s really no pressure here. If this seems overwhelming, you could just try approximating your monthly spend. After a few months of updating your actual spends and comparing them to your budget, you’ll be able see if you’ve missed anything.
There are apps that track your expenses automatically for you, but I’d still check their work – they aren’t always accurate. They also don’t always use expense buckets that make intuitive sense for me.
Now, what are we looking for? For simplicity, we can break this down into 3 categories:
1. Monthly necessities
These are monthly, recurring expenses for things you need.
Examples: monthly cellphone, cable and internet, and utility bills.
Some monthly expenses can fluctuate a lot, like groceries. In that case, you could use your best guess of what’s typical, maybe based on your last 3 months of grocery bills.
2. Annual necessities
These are expenses that you need, but are paid annually.
Examples: property taxes, professional dues, and possibly car insurance.
Some expenses are in-between and are paid a few times per year, like car maintenance. Similar to monthly expenses, I would take a look at the average total cost for the year, and divide by 12 to get a monthly equivalent that you can use for your budget.
How do we deal with those infrequent expenses in a monthly budget? Let’s use Christmas a gift budget with a round number as an example. Say you think you’ll spend $1,200 on holiday gifts this year in December. In the monthly budget, you’d set aside $1,200 budget / 12 months = $100 per month in your budget (and maybe literally in your savings account), earmarked for December gift-giving.
3. Fun things
Or discretionary spending if you’re feeling fancy. Now, what makes something a necessity versus a fun thing is entirely up to you. Personally, in this category I budget for things like eating out, hobbies, and fun activities. (Girls’ night escape room, anyone?)
Tip: Remember to think in buckets here. “Eating out” can include buying lunches at work, on-the-go snacks, grabbing coffee with friends, family brunch, etc. If you’re unsure, or you find the fun things really hard to track, another option is to use a monthly “buffer” that could go to anything.
Step 3: Create the monthly budget
Now that we have our lay of the land, we’re going to take all of that data above and pop it into our budget spreadsheet.
Our budget is what we’re expecting to earn and spend this year, and we’re assuming that this year’s income and spending will be similar to last year’s. If you know things will change (you’re getting a raise, or a new vehicle with lease payments), you can factor those in to better reflect the year ahead.
Once you see everything on paper, take a pause, and check your net cash inflow or outflow.
- Does anything seem off, like we’ve missed something?
- Is there any spending in there that no longer feels aligned or worthwhile?
- How does the current budget support your financial goals?
This is your opportunity to reflect on whether your money is going to what matters most! You can now pull your financial goals in from Step 1 and see what kind of progress you could make toward them, in what timeframe.
Tip: In the previous step, we took infrequent expenses and found the monthly equivalent, as in our Christmas gift example. You can mark or highlight these expenses in your budget so that you know how much of your net cash inflow is true savings versus money earmarked for a future purchase.
Here are some reflective questions to ask:
- How do you feel about what you see?
- Do we need to make some adjustments to improve the cash flow?
- Is there anything missing from your budget you wish you could add?
- Anything we’ve budgeted for that you could really do without?
- How many months will it take to reach your financial goals, and are you comfortable with that pace?
If you’re feeling stuck, this is a great opportunity to connect with a financial advisor to help you meet your financial goals.
Now you have a good estimate of your monthly spending and potential savings for this year. Congratulations! That was a lot of work, and you crushed it.
Let’s settle in and start using the budget to track our progress month-to-month.
Step 4: Compare your actual net cash flow to budget
Here’s the fun part: start tracking your monthly spending! This works best at regularly-scheduled intervals; for example, last Friday of the month, last day of the month, etc.
Go through last month’s statements, and log your income (after tax) and expenses
A gentle reminder not to overthink it — we just want to get a sense of what our true spending was compared to what we thought it would be.
Here’s how that might look practically:
For monthly expenses that don’t really change, you might just check that they indeed didn’t change (no surprise phone bill charges).
For spending buckets like “eating out” or “groceries”, you might just go through your accounts and tally up anything that would fit into that bucket.
Tip: Don’t worry if you choose the wrong bucket! We don’t need precision — just a pretty good idea of what our money got up to this month.
For anything that doesn’t fit neatly into a bucket: That’s what a miscellaneous bucket is for! One-off costs can go here. It’s helpful to leave a note about what’s in there — if you’re finding the same type of cost shows up consistently, then you could add a new bucket for it in your budget.
Once we’ve got last month’s income and expenses logged, we can compare them to the budget we set.
Tip: Remember that some monthly expenses are meant for you to earmark cash for a later expense. So in keeping with our Christmas gift example, if it looks like you saved $100 more than you budgeted for, that actually goes to the Christmas Gift bucket.
And of course, if anything seems off, do some investigating:
- Do any expenses seem way higher or lower than usual? Have we missed anything?
- Any expense categories consistently over budget? If so, do we need to increase our budget in that area?
- Is my money going anywhere that doesn’t feel like it’s supporting me?
Step 5: Fine-tuning your budget
Ideally, you could set and forget your budget for the entire year, or until the next major financial change (especially if you’re number-averse)! But honestly, a budget works best if it’s dynamic and flexible.
So, don’t be afraid to refine it as you go along! Here are some examples of when that might make sense:
- A significant change to your annual income
- A significant new monthly or annual cost
- A new financial goal arose and you’d like to cut costs to help save towards it
- A new value has become important and you want your budget to reflect it (e.g. You increase your eating out budget because that’s where you catch up with your friends most often)
- You discover subscriptions that you don’t use enough and wish to cancel
- Your priorities change; for example, you love fashion, but not as much as you’d love a trip to Europe, so you’re willing to reduce your fashion budget to save up for that trip faster
Your budget is a living document, and it’s meant not just to work for you but to grow with you.
Perhaps the most important takeaway here is that there are no rules. Update it as little or as often as you’d like, to reflect whatever is most important to you. The key is that you use it, and it supports you in getting where you’re going.
Tips for success
I hope you found this article helpful! And if you are a fellow number-averse person, I hope you’re walking away feeling just a bit more comfortable with those dastardly digits.
I’ll leave you with some final tips and takeaways:
Budgeting shouldn’t be punishing. It’s meant to be empowering! We want you to feel confident going about daily life knowing what you’re spending, what you’re saving, and why.
It also shouldn’t be complicated. If there’s any part of the process that feels like too much, find a way to simplify. Limit your buckets, use round numbers, think in “ins” and “outs”. More than anything, your budget needs to work for you.
Think of budgeting as another tool for reflection. In bullet journaling, the tasks you write indicate where your energy is going and help you evaluate what matters most to you. The same can be said for the flow of money. Does it line up for you?
Don’t forget to add a little joy in there. Bedazzle the budget, literally (Colours! Graphics! Fonts!) and figuratively. Save up for something that makes your heart sing. Earmark a bit of your budget for fancy coffees and art supplies if it won’t hold you back from your priority financial goals.
One way that I got past my distaste for numbers was to understand that the numbers are telling a story. In budgeting, that story is personal, and as much as the topic seems dry and mundane, know that it is there to support you, so that you can go on chasing dreams.
Happy financial literacy month!
Before you go: If you want to play with a ready-made budget spreadsheet, you can download mine here: A Simple Monthly Budget Template in Excel
P.S. Although this is not a finance blog, financial literacy matters — and I’m all about using my accounting powers for good. So if you have any questions, or any other related topics that you’d like to see in this space, leave a comment below! You can also reach me via this form, or by replying to my monthly newsletter if you’ve subscribed!
