Help! I Don’t Know How to Create a Personal Budget!

Welcome to the start of an exciting adventure. What adventure? You taking the reins on your finances! Congratulations (truly)! You’ve realized having a budget is essential to designing the life you wish to live. But where do you begin?! Don’t you worry, I’m going to teach you how to create a personal budget that will be as easy as tying your shoelaces. I’ve been tracking and analyzing my spending for over a decade, with some exciting milestones along the way, and I’m pumped to pass on tips to get you started. Here is how you can create an easy-to-use personal budget in only 6 steps. Have fun and happy budgeting!

1. Track Your Spending

Track your spending for 1-3 months. One month generally isn’t enough to get an overall picture, but 3 months is a good starting place. Tracking your expenses allows you to gather information and insight into your spending habits. With these you can start to make some predictions and create your personal budget.

There are different ways to track your spending, from the tried and true pencil and paper, to a variety of apps, to “Notes” on your phone. It doesn’t matter which method you use, so much as you use one, stay organized, and stick to it. Personally, I’ve tried a few apps, but I’m not a fan. While I’ve been told I’m crazy, I’ve been using a mixture of Microsoft Word and Excel for 11 years and it hasn’t failed me yet! Try a few options and see what works best for you.

How to Create a Budget and Track Expenses

2. Analyze Your Expenses

Most of us think we know where we spend our money and how much we spend. Guess what? We’re usually wrong. Until you look at the facts on paper, the numbers in your head don’t count. Some things to pay attention to here are:

  • Where am I spending?
  • How many times a week am I spending money?
  • How many “no spend” days a week (/a month) do I have?
  • Do I go on spending binges after not spending for a while?
  • Do I spend small amounts of money often or do I spend less often but in larger amounts?
  • What percentage of my expenses are Fixed?
  • What percentage of my expenses are Variable?
  • How often are my expenses a surprise (re: car repairs, replacing broken things, etc…)?
  • How much am I spending on Needs vs Wants?
  • Did I include my savings and investments in my expenses?

3. Recognize Which Payment Methods You Use

Knowing how much you spend is important. It’s just as important to know which methods you use to spend that money. For example, some people only use cash. This can be an excellent way to physically see money disappear each time you use it and can be an effective tactic if you’re trying to relearn good spending habits. Other people only use debit cards for similar reasons. Some people will stick to credit cards to build or establish a credit score or to earn rewards points. There are more reasons why anyone would choose one payment method over another.

Last, there are people who use a combination of methods. This requires much more organization and focus and is something I wouldn’t suggest to everyone. Why? Because it can create the illusion that you’ve “only spent $20 cash” this week and “only spent $200 on debit” this week but you’ve also spent $1,200 on credit and now your total spending is much higher than you’ve willfully fooled yourself into thinking.

Do You Budget with Debit Credit or Cash

4. Ask Yourself This Important Question

Do you spend more than you make?

I’m not going to spend much time diving into this because it’s that simple: if you make more than you spend, then you have two options:

  1. Spend less
  2. Earn more

*If you’re thinking to yourself, “what?!”, then stay tuned for a future post on how to earn more money and how to curb your spending.

5. List Your Fixed and Variable Expenses

FIXED Expenses are the expenses that you have on a recurring basis. On my expense sheet I include anything that has a monthly charge. Oftentimes the amount does not change (eg. mortgage/rent), though in some cases they will (eg. hydro bill). SIDE NOTE: There is some debate about whether bills that have differing amounts (re: hydro) can be considered “fixed”. I label them “fixed” because it’s a required monthly bill. This keeps it top of mind when developing my budget. Common fixed expense categories are rent/mortgage, utilities, transportation (insurance, car payments, bus pass, gas), student loan repayment, storage, memberships, and most important of all – YOURSELF! Yes, yourself. YOU are the MOST important fixed expense on this list. Whether it is a TFSA, RRSP, Savings account, Oh Shit Fund, all of the above, or some other option to cover your bases, always pay yourself first.

VARIABLE Expenses are everything else that you spend money on. They are categories that don’t occur consistently (& in some cases during 2020 they’ve barely occurred at all). This can include categories like gifts, hygiene (eg. haircuts), health (eg. dentist), take out, clothes, and so on.

Here is how I break down FIXED and VARIABLE expenses on my personal budget. “Groceries*” has a set amount each month for me and is one of the highest spending categories so I include it on the fixed side. If you prefer it in the variable category because the number fluctuates more, then go for it! It’s your budget so do whatever works best for you.

Tenant Insurance
Car Insurance
Storage Unit
Business – TwTMc
Car Repairs & Maintenance
Takeout / Eating on the go
Health (haircuts, deodorant, medical appointments, etc…)
Shopping (shoes & clothes)
Entertainment (movies, out with friends, concerts)
House Items
Other (chocolate, books, FourAll ice cream, one-off purchases, etc…)
Weddings (gifts, tips, parties, cards, plane tickets, etc…)
Gifts (stationary, birthdays, anniversaries, etc…)
Travel & Weekend Trips

6. Create Your Budget

Everyone’s budget looks different, from the tools they use to the categories they include. I use Microsoft Excel and Word, and my categories include everything from rent to gas to gifts to travel.

  1. Start with your income – the money you receive for providing a product or service. Unless you’re a magician, this is the total sum of money you have to pay for your expenses each month – and no, credit does not count. Write this number in big bold numbers because it is your guiding star. If you work on commission or are self-employed, then start with the lower end of your earnings. Months where you earn more are outliers and are a great time to slide more of those precious dollars into debt payments or savings.
  2. Write down all of the fixed expense categories and their monthly totals. For example, my first category is Rent because it is my most expensive category. On my budget I write down “Rent” and the amount I owe each month beside it. Going through your fixed expense list is generally easier because the numbers don’t change.
  3. Next, write down your most common variable expenses. Certain categories, like Health, might not occur monthly but you know that every 3-6 months you’re getting your teeth cleaned so I’d still include it on the list. Some of my other variable expense categories include Gifts, Clothing, Food on the Go/Take Out, LCBO (even though in Ontario we can finally buy booze at places other than the LCBO and Beer Store, the category name for alcohol remains the same for me), Entertainment, and Household Needs. Beside each of these variable categories, write the average spending (calculated from your 3 months of tracking expenses) beside them as starting points. These numbers may change in the first 3-6 months as you gather more information on your spending habits. You may also find that these categories need to be altered because of what’s leftover after your fixed spending.
Here is How to Create an Easy Budget

And that’s it! Your first budget is now completed.

If you find out you have more money leftover after creating your budget, don’t jump for joy just yet. Budgets are frameworks and unlike unpopular opinion, they’re not set in stone. You might spend nothing on gifts this month and then in July you have 4 weddings to go to. Put that “extra” money away into your “Oh Shit Fund”, Savings & Investments, Debt Repayment, or somewhere else where it can be accessed when needed. Having money leftover in your budget does not mean it’s free for all spending time. Again, this will be different for everyone’s personal situation.

The NUMBER 1 Tip from this exercise is to make sure your expenses don’t exceed your monthly income! If they do, go back to Step 4 and choose which option you’ll use to solve the situation.

TMc’s Budget Tip

Start simple when creating your first budget. Write down your net income and work backwards from there. Deduct the most important expenses first – your savings/investments, debt repayments, housing, food, transportation, and medical costs. From there, everything else is more flexible. Play with and adjust your budget as necessary and assess it after the first 1, 3, or 6 months. Remember – you get to decide how you want your budget to look. Some months may be tighter (re: around the holidays) and others may have more wiggle room (save that extra dough!). No two months will look the same and so allow yourself the room to breathe. Then, have fun and feel proud that you are taking control of your life and moving towards your goals. Now you know how to create a personal budget – yahoo!

Visit Travel with TMc on Instagram to save bite-sized budget information, tips, and tricks in your pocket. Curious how I’ve afforded 10 years of travel? Learn how to Pay Yourself to Travel like I do and get started making travel an accessible reality instead of an Instagram mirage.


About TMc


Me having a seat in front of one of the famous Brighton Bathing Boxes in Australia!

Heya! I’m Tara (Tar-ah)! Welcome to Travel with TMc where you’ll find quirky language tidbits, travel hacks for Canadians, and stories from the road. I hope you enjoy!
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