How We Designed Our Budget Step 7- Creating A Balanced Budget
Estimated reading time: 10 minutes
A balanced budget is not an option when calculating your finances; it’s essential.
Without a Balanced Budget, you may spend more than you earn every month, creating unnecessary debt that you should avoid.
Today, I’ll walk you through how we created our balanced budget.
A Balanced Budget Only Works If You Want It To
I will warn you this is a bit of a long post, so take your time reading it since it’s about having a balanced budget.
This step in the budgeting process is critical to the success of your financial health because if you spend more than you earn, you’re essentially creating debt, which you want to avoid.
Balancing the budget is relatively simple, provided you have enough money.
If you are not balancing a budget or using one, you’re likely tossing money out the window without thinking about it, even if you feel you aren’t.
It doesn’t matter how much money you make each month; it’s all about what you do with it.
A budget keeps track of what’s coming, going out, and what you’ve got left.
If you don’t keep track of your money, you could be spending more than you think.
It’s your choice, your life!
Creating a Balanced Budget
Balancing a budget takes time and won’t happen overnight.
Once you think you have everything, something else creeps in.
When we discussed how we designed our budget, Step 1 – Gathering All the Information, I asked you to round up everything you need to pay; that part will be helpful.
You should know your net Income, not your gross Income, from Step 1.
Your Net Income is what your employer deposits into your bank account.
Gross income is everything you earn without any taxes or investments taken off your pay.
Using your basic net Income, not including any overtime or bonuses, would be best.
Balanced Budget Process
How we Balanced our Budget using the Canadian Budget Binder Budget Sheet (CBS)
Net Income Total-$5742.00
Balancing the net income with the actual expenses ensures all income is allocated.
We have $5742.00 to use in our monthly budget, even though our Net Income may be more.
We don’t include overtime or “other pay” in our Budgeted Income, as Net Income varies monthly.
Base your budget on the lowest monthly income you bring (Basic hours, no overtime, no bonuses, etc).
We have a section titled “Extra Income” where we input Gift cards won, earned, given, extra money made, mail-in rebates, garage sales, and account interest (you can put whatever categories you want in the CBBBS).
Any income made over our typical net goes to our savings. Others might use this to pay down consumer debt or the mortgage.
It’s up to you!
Categories and Projected Expenses
We thought of every category that is essential to our household budget.
Since we finished designing the “Canadian Budget Binder Budget Sheet,” our Categories will differ from our February Budget and Step 2 in creating the Budget as things have changed.
We also made categories for EVERYTHING we knew we would have to pay for (projected expenses) at some point in the year.
You will constantly be tweaking your budget, which is essential as situations and life change, as will your budget.
I removed the blank areas because, in the Canadian Budget Binder, we created random categories such as “Cell Phone” and “Home Phone,” whereas we bundle it where someone else might not.
I’ve removed the blank categories we don’t use for easier viewing here.
One thing people tend to forget about in the budget is those handy ATM charges.
If you are starting to budget, remember to track those ATM charges; otherwise, you may wind up with less than you think.
Our projected expenses are each category with a “p” next to the number.
Example
| Monthly Budget Totals | $5,742.00 |
| Allowance | $15.00 |
| Car Repair/Maintenance | p$11.00 |
| Christmas | p$25.00 |
| Clothing | p$10.00 |
| Dental/Medical | p$5.00 |
| Electricity and Water | $153.05 |
| Emergency Savings | $1568.73 |
| Entertainment | p$7.00 |
| E-Test | p$4.00 |
| Furnace/Hot Water Rental | p$37.46 |
| Gas (Domestic) | $59.19 |
| Gasoline/Diesel (Car) | $192.00 |
| Grocery | $190.00 |
| Home Maintenance | $50.00 |
| Home/Car Insurance | $189.46 |
| Income Tax Filing | p$2.50 |
| Investments | $767.00 |
| Licence Renewal Fees | p$11.84 |
| Life Insurance | $135.05 |
| Lottery | $12.00 |
| Membership/Clubs/Sports | p$6.00 |
| Miscellaneous | $294.50 |
| Mortgage | $1,470.13 |
| Parking | p$5.00 |
| Pet | p$2.08 |
| Property Taxes | p$287.45 |
| Sticker (Car) | p$16.00 |
| Telecommunications | $165.56 |
| Work Tools | p$50.00 |
Understanding Projected Expenses
These projected expenses are no surprises, as you know that the bill will arrive at some point during the year.
As mentioned, you will see the letter “p” next to our projected costs.
We divided the total for the projected expense by 12 to give us a monthly figure that we need to save for.
These numbers could change for us since I’m still waiting for pay with no overtime for an exact figure.
I was just given a raise this past month, so once I get that figure, I ]\will update them if necessary.
The projected money goes into a separate Savings Account we opened just for these items.
Paying For A Projected Expense
The money is transferred and used when paying for the item/service.
We also bank money in our budget for items where we didn’t use the budgeted money, i.e., clothing and entertainment.
When the bill arrives for a projected expense, we manually transfer the money to our Chequing Account to get paid.
We continue to save for each projected expense until the end of the year, whether paid or not, because the money has to come from somewhere.
I know it’s a bit more work, but we know the money will be in the account when that projected expense comes in at the end of the day.
We won’t be scrambling for money we saved for it all year long.
Once you set up all your categories, you can divide your Net Income into these categories.
Make sure your “Fixed” expenses get paid first, as they are expenses you “have to pay“
We try to stick to the golden percentages below when designing our budget as per ex Til Debt Do Us Part TV host Gail Vaz Oxlade.
You may notice we have no debt but the mortgage, so our percentages will be a bit different.
Note– We’ve since paid our mortgage in 2014, and our budget has changed, as you will note in our monthly budget updates.
Category Expenses Too High
If you figure out your expenses are higher in each category, you must do one of three things.
- Make more money $$$
- Stop spending on unnecessary items.
- Get rid of stuff you don’t need – iPhone, Internet, Cable, etc until you can balance your budget, car- take the city bus.
Total your fixed expenses so you know how much it will cost.
It would be best if you had a dollar figure to work with.
Then you see how much money you have left to pay your “variable expenses.“
| Budget percentages, according to Gail. |
| Housing 35% |
| Transportation 15% |
| Life 25% |
| Debt Repayment 15% |
| Savings 10% |
Understanding Fixed Expenses
What are Fixed Expenses?
Fixed expenses are the same amount each month unless a rate increase is realized, i.e., your cable company changes its pricing.
Go through your budget categories and determine which ones are fixed and variable so you know.
- Mortgage/Rent
- Utilities- All
- Insurances- Home, Health
- Car/Truck Payments
- Child Care/Babysitting
- Condo/Maintenance Fees
- TFSA- Investments
- RRSP- Investments
- RESP- Investments
Total your fixed expenses so you know how much it will cost.
It would be best if you had a dollar figure to work with.
Then you see how much money you have left to pay your “variable expenses.“
Understanding Variable Expenses
What are Variable Expenses?
Variable expenses are costs that go up and down each month and typically are not the same. I call these expenses “everything else” not listed above.
- Clothing
- Gas/Petrol
- Debt repayment
- Entertainment
- Dental/Medical
- Pet (s)
- Groceries
- Public Transit (bus etc)
- Bank Fees/ATM
- Emergency Savings
Using Variable Expenses In Your Budget
You have to make sure you think of EVERYTHING you need to pay for; otherwise, you won’t be setting up a “true balanced budget.”
Now we know how much is in each category to spend each month.
Every time we come home with a receipt, it goes into our handy file folder on our desk.
We sit down and go through the receipts once a week, usually on a Sunday.
We open the bank account online, check everything that has gone through that week, and enter it into the spreadsheet. I.e., Mortgage payment, Insurance.
We also input all our receipts and then file them in our folder that reads “entered,” meaning they’re in the system.
Utilizing The CBB Spreadsheet
Our Canadian Budget Binder Spreadsheet automatically shows you how much is left in the category as you input the data.
If you are one of these people in serious debt, I recommend you enter the data daily to know where you stand.
I don’t care if you use budget jars, envelopes, or any other budgeting systems and apps that help you to see your money input and output.
All you need to know is “how much” is left to spend so you don’t spend more than you earn.
The Canadian Budget Binder Budget Spreadsheet will show you these three important figures:
- Budgeted Amount
- The Actual Amount Spent
- The Difference Between the two
The CBBBS also tells us what amount $ has to go into the Savings account for those ‘”projected expenses.”
Once you move the money to the savings account, input the data in the CBBBS and under what category, and the money saved will be reflected in its category.
It will tell you how much you have moved so far in the month.
| $475.33 | Needs to go to Savings for Projected Expenses |
A Budget Is A Financial Bible
The CBSS will also show you if you have spent more than you made in the month and how much.
If we stick to the budget, we know how much will end up in our Emergency Savings (ES) at the end of the month.
If we spend more than we budgeted for in the categories, this will come out of that Savings figure.
We don’t encourage overspending nor using your emergency savings for anything but emergency savings, so STICK TO THE BUDGET.
Don’t worry; we fall off the wagon occasionally; we’re all human.
Everyone Makes Mistakes
Note: The Grocery Game Challenge ran from 2012-2018, and you can read all of our blog posts in The Ultimate Grocery Shopping Guide for more grocery savings info in Canada.
This is why we designed The Grocery Game Challenge, as we spent far too much on groceries last year and wanted to curb that spending.
We are working hard to change our grocery budget, but it is difficult when you know you are stocking up on a good deal and have the emergency savings to cover it.
Not everyone has emergency savings from which they can pull money if they spend more than they make, but the key is NOT to do this.
We then have to ask ourselves if our budgeted amount in a category is realistic and if we should change it.
If you don’t have the means to change it, you better stick to the plan or make more money!
That’s the end of Step 7, and now you can move on to Step 8- Knowing Your Coupon Savings.
Related Posts:
- How We Designed Our Budget Step 1– Gathering All The Information
- How We Designed Our Budget Step 2-Categories
- How We Designed Our Budget Step 3- Tracking Receipts
- How We Designed Our Budget Step 4-Notetaking
- How We Designed Our Budget Step 5– 5s Organization
- How We Designed Our Budget Step 6- Who Does What and When?
