Your First Budget in Canada: A Simple Monthly Plan

Why start with a budget

The Financial Consumer Agency of Canada (FCAC) suggests thinking about your short-term and long-term goals before you begin, knowing where your money is going by tracking your expenses, and evaluating your needs and wants ^[1]. For a newcomer there is one more reason: you are setting up a whole new set of costs at once, and a budget shows whether your income and savings can carry them.

Three steps to a budget

1. 1

   Step 1: Add up your monthly income

   Money coming in could be income from employment, an allowance or interest ^[2]. Gather your pay stubs, bills and account statements so you are working from real numbers ^[1].

2. 2

   Step 2: Add up your monthly expenses

   FCAC groups expenses into three types: fixed expenses, which come up every month and are roughly the same amount; variable expenses, which can change each month; and irregular expenses, which don't occur every month and include things such as tuition, travel, car repairs and gifts ^[2].

3. 3

   Step 3: Subtract expenses from income

   If you have a surplus, think about what you can do with it ^[2]. If your expenses are higher than your income, look at your wants first.

What to include as a newcomer

How a cost is classified depends on your situation, so treat this table as a starting list, not a rule.

A guideline for rent

CMHC's general rule is that housing costs, which include rent, utilities and municipal services, should be less than 30% of before-tax household income ^[5]. It is a guideline, not a requirement, and you will have to decide what works for your situation.

Needs and wants

FCAC describes a need as something essential, such as food, shelter, clothing, electricity and transportation, and a want as something nice to have, such as electronics, eating out, video games, travel and concerts ^[2]. When the numbers don't balance, it is usually easiest to adjust your wants first.

FCAC's ideas for reducing expenses include taking advantage of seasonal sales, shopping around and negotiating, using free community resources, limiting non-essential purchases, and replacing items only when they are worn out rather than for newer versions ^[2].

Savings belong in the budget

Treat savings as a line in your budget, not what is left over. FCAC says you should ideally try to save the equivalent of 3 to 6 months of your regular expenses for emergencies, and that it is better to start with a small amount so you don't get discouraged ^[4]. See Chequing, Savings and TFSAs.

Make it stick

• Keep all your receipts and bills, and update your budget with any changes ^[1].
• At the end of each month, compare your budget to what you actually spent. If your actual spending keeps differing from your budget, adjust the figures to be more realistic ^[1].
• Record purchases, bill payments and savings promptly, because it is easier than reconstructing them later ^[2].
• Try FCAC's Budget Planner, a tool that lets you create a personalized budget and save it online. It gives tips and guidelines, shows charts of where your money goes and compares your spending with other Canadians ^[1][3].