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Budgeting for your household
It’s a great feeling when you know you’re in control of your money. It all starts with a budget. Are you saving for a wedding, a car, or just next month’s groceries? When you create a budget, you can track your money better
Book an appointment with an advisor to help you set up your budget.
Key takeaways:
Whether you’re just starting out or looking to improve your money habits, budgeting is the foundation of creating financial stability.
Budgeting isn’t just about tracking dollars and cents. A good budget can help you stay on top of monthly expenses, reduce your debt and save for short- and long-term goals.
Let’s dive into how you can create a budget and take control of your financial future.
How to make a budget
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Step1
What is a budget?
Before you build your budget, you want to understand what one is and how it can help you. A personal budget is a record of your monthly income and expenses. It lets you see your resources in a single place so you can better understand your financial picture.
When you use a budget, it’s easier to:
Live within your means: Overspending is easy when you don’t have a clear picture of your cash flow — meaning how much money is coming in (income) and how much is going out (expenses).
Be ready for emergencies: Budgeting helps you find money to sock away in an emergency fund.
Reach your savings goals: Saving money takes planning, and your budget provides the framework. Whatever your savings goals — buying a home, going on a dream vacation or retiring early — a budget will help you figure out how much money you can set aside.
Maintain peace of mind: Financial stress can take a toll on your health. A budget helps keep your money matters under control.
Keeping a budget is an essential part of personal financial management, like reviewing your credit card bills and tracking your credit score. Here's how to make a budget that works for you.
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Step 2
Prepare your own budgetThere are many ways to build your budget, but whichever you choose, make sure you can edit it over time.
Many people like to use a simple spreadsheet to build their budget from scratch. If you need a little help getting started, consider using a budgeting tool to simplify the process.
Try out two of Scotiabank’s tools to help you build and stick to your budget:
- The Money Finder is a free budget calculator designed to help you create a spending plan for your household. It compares your income and expenses and gives you a better sense of how much available money you have to put towards your savings. It takes just a few minutes to complete, but you’ll start to see how your income and expenses stack up, and how much you might have left over.
- Scotia Smart Money by Advice+ can help you manage your budget. This free tool for Scotia clients1 gives you access to money management features in the Scotia app that can make it easy to track your bills, monitor your spending and manage your cash flow. Plus, you'll get personally tailored advice to help you better manage your money.
Identify and input your income and expenses
The key to creating a useful budget is making a complete and realistic list of where your money comes from. You want a full picture of your finances, both your sources of income and your list of expenses.
Income you may have to record:
- Take-home pay from employment (full time, part time, casual)
- Student loans
- Financial help from family
Common expenses:
- Housing (mortgage payments or rent)
- Groceries
- Insurance (auto, health, home)
- Utilities like hydro and electricity
- Telephone and internet
- Transportation (public transportation, gas, EV charging)
- Loan repayments, including credit cards
- Clothing
- Meals out and entertainment
- Vet bills
- School or work supplies
- Household expenses, such as toothpaste, toilet paper and garbage bags
Be as detailed as possible in these sections. The more accurate your budget, the better it will work for you.
Analyze your income
Once you’ve input your numbers and done the math, you now have one of these results:
- You’re breaking even.
- You don’t have enough to cover your bills.
- You have money left over.
If you have money left over, congratulations! You can focus on tailoring your savings to meet your goals.
But if you’re falling short or just breaking even, don't worry. You just need to figure out where to find the extra money — chances are, some of it's hiding in your expenses.
Analyze your expenses
Since not all expenses are the same, there are many ways to categorize what you spend. For example:
- Necessary vs. discretionary expenses: Necessary expenses are the bills you absolutely must pay, like your mortgage or rent, groceries, utilities and transportation. You have more financial wiggle room with your discretionary spending, such as those “nice to have” purchases like new clothes or dining out.
- Fixed vs. variable expenses: Another way to look at your bills is to think of them as fixed expenses — meaning they’re the same amount each month — or variable expenses, which change or are sporadic. Don’t forget to include unexpected expenses, such as a trip to the vet or a speeding ticket. The more you’re prepared for financial curveballs, the less an unanticipated bill will derail your budget.
How to budget with inconsistent income
Budgeting can be a challenge when you don’t earn the same amount each month. If you freelance or have side jobs, try tracking your income over time to get a sense of how much you usually bring in.
If your income is variable, prioritize building an emergency fund. That way, you can dip into it in months where you earn less. Just remember to replace the money you withdraw so it's available when unexpected expenses crop up.
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Step 3
Define your financial goalsNow that you’re clear on your current financial situation, it’s time to think about your goals. Financial goals can be grouped into two categories:
Short-term goals are those you might achieve within weeks or months. Examples include paying down credit card debt, saving for a vacation or starting an emergency fund.
Long-term goals may take years to achieve, such as buying a house or building your retirement fund.
Make space — a literal line item — for all of your goals in your budget. Achieving short-term goals is good for both your bottom line and your confidence. Plus, they’re often related to reaching larger financial goals.
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Step 4
Work with your budget to reach your goalsWhen you add your goals to your budget, you can track your progress and see the result of every money decision you make. Ideally, you should update the document monthly or bimonthly, or whenever your income or expenses change.
No matter what goals you’ve decided on, here are some priority items to keep in mind.
Pay down debt
Getting out of debt should always be a priority because compounding interest rates can make it difficult to get ahead. There are three common strategies to pay down your debt:
The debt snowball method
With the debt snowball method, you'll focus on paying off your smallest debt first while making the minimum monthly payments on all your other debts. “Snowball" refers to the way the amount you have each month to pay off your smallest debt gets larger with each debt you retire.
The debt avalanche method
Like the debt snowball method, with the debt avalanche strategy you're consistently paying more than the minimum on one debt each month. But that's where the similarity ends. With the avalanche method, you'll focus on paying off your highest-interest debt first, while also making the minimum payments on all your other outstanding balances.
The debt consolidation method
Like the debt snowball method, with the debt avalanche strategy you're consistently paying more than the minimum on one debt each month. But that's where the similarity ends. With the avalanche method, you'll focus on paying off your highest-interest debt first, while also making the minimum payments on all your other outstanding balances.
Build your savings
It’s equally important to have an emergency fund so small (or big) expenses don’t upset your financial plans. Add your emergency fund to your budget and prioritize it until you have three to six months' worth of living expenses saved to help you navigate anything expected that might pop up.
Make a plan instead of winging it
The clearer your plan, the more success you'll have in meeting your goals. Here are a few common budgeting methods you might use:
50/30/20 rule: You break up your income into three pots — 50% toward necessary expenses, 30% toward discretionary expenses and 20% toward savings (and debt repayments).
70/20/10 rule: You dedicate 70% to your living expenses (essential and nonessential expenses), 20% to saving and investing and 10% to paying off debt.
Pay yourself first: You prioritize savings over everyday expenses. Only use this method if you have enough income to cover your necessities.
Zero-based budgeting: You make sure every dollar you earn goes into one of your expense or savings categories, so there’s no money left over.
It may take time to land on a method that works for you, and that's OK. The most important rule is to find a plan that you can stick to.
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Step 5
Set up automatic savingThere are tools you can use right now to get started. In addition to the Scotia Smart Money and the Money Finder Calculator we walked through early, consider these tools.
Pre-authorized contributions (PACs)
Once you’re learning how much money you can put aside each month, you can set up a reoccurring contribution to your TFSA, RRSP or other savings and investment accounts. This is a strong option if you have a regular paycheque — you simply select an amount within your monthly budget to automatically put away. PACs take the guesswork out of saving. Learn more about how PACs work.
Saving tools
Available in the Scotiabank app, Scotia’s smart saving tools — Pay Yourself First and Savings Finder — help you put saving on autopilot. These tools can help you reach your goals by automatically moving small amounts of money into your savings account (you will need to have both an eligible Scotiabank chequing account and the Money Master Savings Account).
FAQs
Budgeting at your fingertips
Talk to a Scotia advisor today about preparing a budget that’s tailored for you and your family.
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This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. References to any third party product or service, opinion or statement, or the use of any trade, firm or corporation name does not constitute endorsement, recommendation, or approval by The Bank of Nova Scotia of any of the products, services or opinions of the third party. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.
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To access Scotia Smart Money by Advice+, you must have an active personal banking retail product, have transacted at least once on your account within the preceding 6 months and have logged into the Scotia Mobile Banking App.