Manage your cash flow with a budget

Knowing how to manage your money by creating a budget is one of the most valuable life skills you'll ever learn.

Why create a budget?

The idea of setting up a budget might initially seem daunting but setting time aside on a weekly or monthly basis can have great advantages in how you manage your cash flow.

Budgeting can help you:

  • know how much money you will have or are earning
  • identify what you are spending your money on
  • dedicate specific amounts of money to various categories, including personal spending and entertainment
  • create and meet financial goals
  • preserve your funds to ensure you have enough money to last until the end of the month or term

How to make a budget

The point of creating a budget is to ensure that you’re not spending more than you have.

Watch a video from the Financial Consumer Agency of Canada on how to make a budget.

1. Estimate how much money you will have. This includes:

Calculate your average monthly income or total amount of funds. For incoming funds, add up only what you know you will be regular, like paychecks and student loan payments. Avoid including variable income, like tips or birthday money.

2. Estimate how much money you will spend. This includes:

  • tuition, fees, books and materials
  • rent and utilities,
  • phone and internet,
  • car loans, parking, gas, bus, taxi etc.
  • food
  • entertainment
  • etc.

Check your your bank statements and cash receipts from the last three months. If you don't have every receipt or remember evey item you bought, that's okay. This is intended to be an initial approximation. Sum these expenses to estimate your total expenditure.

Divide your expenditures into these categories:

  • Fixed spending: Expenses that are the same each month like rent, phone bill, car insurance, food allowance, etc.
  • Variable spending: Variable expenses are still necessary costs but the amount changes every month or spending happens less frequently, like tuition payments, insurance, car maintenance etc.
  • Discretionary spending: Expenses that might vary from month for things you desire but don't need, like entertainment, shopping, restaurants, etc.

3. Do one simple calculation

Available funding - costs = budget

  • If the total budget is greater than zero, congratulations! You should have enough to cover your costs.
  • If the total budget is zero or less than zero, you will need to look for ways to save or increase your income. 

How to make your budget work

If you're spending more than you have, here are some ways to increase your income or cut back on your spending.

Ways to increase your funds

To add to your income, consider applying for:

Ways to cut costs

Since your fixed spending is relatively consistent and not as flexible, first examine your discretionary spending. Are you making any ongoing unnecessary purchases? Here are some tips:

  • Put needs before wants - buy what you need first. Eliminate unnecessary expenses by looking for things you can live without.
  • Use cash only for discretionary spending like entertainment and miscelanous shopping. Consider setting aside a monthly cash allowance for yourself. This will often make you pause to rethink whether or not you really want to use your cash to purchase something.
  • Limit credit card use - using credit cards with no plan to pay the debt is reckless and financially irresponsible. To avoid getting into more debt, use cash, etransfer or a debit card instead of a credit card. That way, you're only spending money you already have. Only use credit if you know you can pay off the balance each month.
  • Pay highest interest rate debts first - if you have a balance on your credit card, then this is likely the debt with the highest interest rate. Never use one credit card to pay the debt of another; use cash or a debit card to avoid accumulating more debt.
  • Reduce small, reoccuring expenses - little savings every day can go a long way. Take public transportation, pack a lunch, bring coffee in a thermos, reduce banking fees. These little costs can become 'death by a thousand cuts'.
  • Avoid buy now pay later offers and pay day loans - when you are having problems making ends meet, the fees and compounding interest rates tied to such offers will only worsen your existing debt load.
  • Get a consolidation loan - talk to your bank or a financial professional about getting one single loan to pay off all your existing debts so you have just one monthly payment to make. Once you consolidate your debts, you must stop using any credit cards or line of credit that you consolidated into the new loan. 
  • Talk to trusted financial professionals - these may include your bank representative, a financial planner or a credit counselling agency. With their help, you will be able to evaluate your current debt situation, determine your present and future needs, make a budget, and find ways to pay off your debt.
  • Be informed about taxes. Find information about the amounts you may be able to claim as a deduction or a credit related to education.

Tools and resources

Here are some helpful tools and resources

Information from the Financial Consumer Agency of Canada

Community education and credit counselling

Budgeting Apps

  • Mint Canada - free android and iPhone app for managing your money
  • Grocery IQ - free android app for planning a grocery budget and shopping list