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One of the most valuable things you can do to get a handle on your finances is to make (and stick to) a financial budget. And while it’s rarely something we want to do, it’s really worth the time and effort you put into it.

A budget not only helps you understand the current state of your finances, it also helps you keep track of where you’re spending money, and how you can adjust your spending to better reach your financial goals.

There are lots of different ways to go about this. In this article we’ll be going over a number of different budgeting methods, including the pros and cons of each.

To start, we’ll go over a few tips to help you get started.

5 top budgeting tips for getting started

Here are some basic go-to budgeting tips for people who might be new to this.

Tip 1: Understand your current financial situation

To get started with creating and maintaining a budget, you have to start by really understanding your current financial situation. This isn’t as scary as it may sound, and really just boils down to going through and writing down your current income and expenses, including:

  • your income, including your primary job and any side gigs you have,
  • your bank accounts,
  • your credit cards,
  • any investments you may have, and
  • any regular ongoing expenses you have, including things like groceries, rent or mortgage, car payments and maintenance, insurance payments, utility bills, and debt payments.

It really is worth taking the time, buckling down, and being brutally honest with yourself about the state of your finances. You can’t start to fix or manage what you don’t really understand.

Tip 2: Examine your current spending habits

Understanding how you’re currently spending your money is one of the key things you need to do in order to set a budget that is going to work for you and start streamlining where your money goes.

Take the time to go through the last few months of your bank account and credit card statements, and write down how much you’re spending on various things. People who want accurate-to-the-penny numbers can use a spreadsheet for this, but also just writing rough numbers out on paper is enough to get started.

Go through your records and break down your monthly spending into each of the following categories. Once you’ve done this, write down roughly how much you spend in each category per month, using the past 3 to 6 months of your records as a guide.

  • Housing, including rent or mortgage payments, house insurance, property taxes, and maintenance.
  • Transportation, including transit fees and passes, car loan payments, gas, car insurance, and car maintenance.
  • Groceries and other day to day consumables, including food, cleaning supplies, toiletries, and beverages.
  • Utilities, including gas, electricity, water and sewer, phone, television, and internet.
  • Medical and healthcare, including any supplemental insurance you’ve purchased, gym memberships, prescriptions, dental and optical expenses, and therapy.
  • Savings, investing and debt payments, including any money you’re actively putting into an emergency fund, any investments you’re paying in to, and any payments you’re making towards other debt (credit cards, lines of credit, etc.).
  • Recreation and entertainment, including things like streaming services, premium television bundles, concert tickets, sporting events, books, vacations, movies, games, and hobbies.
  • Personal spending, such as clothes and shoes, home decor, magazine subscriptions, gym memberships, and the like.
  • Miscellaneous, which is a catch all category for anything that doesn’t fit somewhere else.

Once you have a relatively clear understanding of where your money is going, you’ll have the ability to adjust that spending to fit your budget and future financial goals.

Speaking of which…

Tip 3: Set concrete financial goals and prioritize them

Do you want to buy a house? Are you determined to pay down your student loan more quickly? Are you hoping to go on a whirlwind vacation sometime in the future? Do you just want to get out of debt?

We all have financial goals of one type or another, and now’s the time to make those concrete and start to prioritize them in your budget.

Start by writing down all of your financial goals, and putting them in some sort of priority order. Then figure out how much money you will need to accomplish that goal, and be prepared to work those savings and debt payment goals into your monthly budget.

Making and tracking these sorts of goals is incredibly satisfying, and if you make them part of your monthly spending plan, you’ll get there faster than you think.

Tip 4: Pick a budgeting method and give it a try for a while

We talk about a number of different budgeting techniques below, some more detailed and time consuming than others. Read through the descriptions and pick 1 that feels most suited to how you work and think.

Some of us love creating and maintaining detailed spreadsheets of our spending and tracking those over time. Others really want something a lot more simple, that just helps them have a general understanding of what money is coming in and how it’s being spent.

You know yourself best. Pick a technique that you think will work for you and that you’ll be able to stick with for a while, then just get started.

Tip 5: Find the best financial products for you

Best high interest savings accounts

Having a high interest savings account for your emergency fund (and any other cash that you want to keep relatively liquid) is a great place to start. There are lots of options available, depending on how much return you want to get, and how easily you want to be able to get at that money if you need it.

The EQ Bank Savings Plus Account, for example, can earn you 2.00%* interest, and there are no everyday banking fees to worry about.

Either way, doing some research and finding a great high interest savings account is worth a bit of your time.

* Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.

Best credit card combos for maximum rewards

There are people who believe that credit cards are a necessary evil, but we (maybe obviously) feel differently. With the right combination of credit cards in your wallet you can rack up some significant cash back or other rewards that are worth real money and that will help you save over time.

If you haven’t, you should take the time to do our credit card Challenge and start exploring some of the credit card options that may be best suited to you.

We also have a number of other articles that will help you understand how to manage your credit cards, and how to maximize your credit card perks and rewards, including:

Find the right budgeting tool for you

There are lots of different tools available to help you set and stick to a budget. Some of these are online subscription-based apps, others are free, and still others are things you can download and use like traditional software.

We have a list of some popular tools towards the end of this article.

Related: Best Credit Card Offers, Sign-Up Bonuses, And Deals

9 best budgeting techniques

Let’s dive into a few different budgeting techniques you might try.

Budgeting Method Best For People Who…
Traditional budgeting * want a very detailed understanding of and control over their money, and
* don’t mind investing some time and effort working on their budget every month.
Proportional budgeting * know they have enough surplus income to put at least 20% of it into savings, and
* want to make the saving process as simple as possible.
Cash only or “envelopes” method * need to establish much more disciplined spending habits, and
* are willing to set up and consistently use a system that will help them do this.
Sub-savings accounts method * have specific and concrete financial goals, and
* don’t mind having a bunch of different active savings and investment accounts to manage these.
Zero-based budgeting * are very disciplined,
* have a very detailed understanding of their income and expenses, and
* don’t mind spending quite a bit of time tracking and managing their budget every month.
Values-based budgeting * aren’t happy with how the current state of their finances, and
* want to be more deliberate about how and on what they spend their money.
Pay yourself first or “reverse budgeting” method * already have a fairly generous budget, or
* who know precisely how much they can afford to put into savings without shorting themselves on
essential expenses.
The no budget budget * already financial stable, and
* don’t want to spend a lot of time thinking about their money and financial goals.
The hybrid * are budgeting veterans on solid financial footing,
* have clearly defined long-term financial goals, and
* have made clear progress working towards those already.

Traditional budgeting

Traditional budgeting is sort of the default method that many people think of first when they think “budgeting.” You write down your income, a detailed breakdown of all of your expenses, and put whatever’s left over towards savings or debt repayment.

If you’re interested in this budgeting system, we have a handy Monthly Budget Planner spreadsheet that you can download for free. Download the Excel version here.

Pros

This sort of budgeting gives you a great deal of insight into exactly where your money is going, making it easy to figure out how to adjust your spending if needed.

Cons

Traditional budgeting can be very time consuming, and many people find it overly burdensome. Unless you find joy in playing with spreadsheets and tracking numbers over time, this may not be the budgeting method for you.

Best for

People who want a very detailed understanding of (and control over) where their money is going, and who don’t mind investing some time working on this. It helps if you sort of love working with spreadsheets and tracking detailed financial goals over time.

Proportional budgeting

Proportional budgeting is less arduous and detailed, but still requires a bit of tracking. The basic idea is that you assign a portion of your income to various expense categories and only spend that much on each category per month.

50/30/20 rule

This version of proportional budgeting was popularized by Elizabeth Warren, the United States senator. The basic idea is that you divide your income into 3 main categories:

  • 50% to needs, including housing, transportation, and food,
  • 30% to wants, such as recreation and entertainment, dining out with friends, and streaming services, and
  • 20% to savings, including an emergency fund, investments, and your retirement fund.

80/20 budget

The 80/20 budget is similar, but simpler. In this you assign your income to 2 categories:

  • 20% goes into savings, and
  • 80% covers everything else.

60% method

This version of proportional budgeting was originally developed by the author Richard Jenkins, and in it you divide your income into 5 categories:

  • 60% goes to committed expenses, including your car payments, mortgage, food, etc.,
  • 10% is for short-term savings that you use for irregular expenses such as property tax payments,
  • 10% goes to long-term savings and debt reduction,
  • 10% goes to retirement savings, and
  • 10% is “fun money.”

Pros

Proportional budgeting means you don’t need a detailed breakdown of your spending, which makes it a lot more attractive for most people.

And it’s really easy to automate the savings part – open a high interest savings account or other investment account, and just auto-deposit the appropriate portion of your monthly income.

If your income goes up (or expenses drop) it’s easy to increase your savings by boosting your savings auto-deposit amount by any surplus you have.

Cons

For the 50/30/20 version of this, it can be difficult to figure out what counts as a “want” rather than a “need,” which can make it a little frustrating. The 80/20 version simplifies that confusion out entirely.

Similarly, the 60% method is complicated by the 4 different 10% categories – it can be easy to dip into your “short-term savings” account for something that really should count as a “fun money” expense, particularly if you’re managing these accounts with your significant other.

Best for

People who know they have enough surplus income to put at least 20% of it into savings and investments, and who want to make it as simple as possible by automating those deposits.

Cash only (aka “envelopes”) method

Originally devised by Dave Ramsey, the idea behind the “envelopes” method is pretty straightforward. You control your spending in various categories by literally taking money out of the bank and putting it in one physical envelope per category.

Then, when you go to buy things from a category, you use money from the appropriate envelope and once the envelope is empty, that’s it. No more spending in that category until you fill up the envelopes again next month.

This technique can be as complex or simple as you like, because you don’t have to use envelopes for every spending category. If you tend to overspend in 1 or 2 areas in particular, you can just have envelopes for those.

Pros

Used properly, this system can help you control your spending in particular categories. It does require some discipline to keep yourself from cheating and taking money from the wrong envelopes here and there.

Cons

Not a lot of people use cash anymore. Cash just doesn’t really work in a world of tap payments and online shopping.

On the other hand, if you only have 1 or 2 spending categories you want to use this system for, it might be a great opportunity to use a prepaid credit card. Just load the card up with your spending limit for those categories every month, and then use the prepaid card when purchasing those things. Once the card is empty, that’s it.

There are even some no annual fee prepaid credit cards that have some rewards like cash back. Not only will you be controlling your spending, you’ll be earning rewards to help you save even more money over time.

Best for

People who need to establish much more disciplined spending habits, and who are willing to set up and use a system to do so.

Related: Top No Fee Credit Cards with 1% Cash Back (or More) On All Purchases

Sub-savings accounts method

The sub-savings accounts budget method is similar to the 80/20 proportional budgeting method, except you decide what proportion of your income is going to go into savings. You also decide how that savings is going to be divided up, if you have multiple financial goals.

The basic idea is that you set up an account for each savings goal you have, for example:

  • down payment for a future house,
  • fun tropical vacation,
  • kids’ college fund,
  • car maintenance,
  • house maintenance and property taxes.

Once these are set up, you decide how much you want to contribute to each account every month, and have that money automatically deposited in each when you get paid.

That done, you get to freely spend whatever money remains.

Pros

Fully automating your savings is obviously a great strategy that can help you more easily reach your financial goals.

You can also customize what sorts of accounts you’re contributing to. For example:

  • an RESP for the kids’ college fund,
  • high interest savings accounts for your vacation money and house maintenance, and
  • an RRSP for your long-term retirement savings.

And so forth.

Cons

Having a different account for each of your short-term savings goals is splitting your money up and possibly reducing the accrued interest you’ll make over time. Consolidating these may be a better strategy if you want to maximize compound interest.

Also, if your accounts have associated fees, those fees can really add up if you have a bunch of different accounts.

Best for

People with specific financial goals who don’t mind having a bunch of different active savings accounts.

Related: Online Shopping: Best Credit Cards For Earning Cash Back And Saving On Foreign Transaction Fees

Zero-based budgeting

In the zero-based budgeting method, every penny you have coming in is assigned to a particular purpose, and you end up with no extra money sitting around doing nothing.

Several other of these budgeting techniques can end up being a zero-based method if you end up spending every cent that comes in, but in this technique you do this much more deliberately.

For example, if you know exactly what you spend on expenses every month, you can assign that many dollars to those, and then deposit everything else into savings or put it towards outstanding debt.

Pros

If every dollar has a purpose, nothing will go to waste. Any excess money you have can go into savings and help you reach your financial goals more quickly.

It can be useful for keeping a close eye on your spending and quickly adjusting things if anything goes off track.

Cons

This method requires that you have a very clear understanding of what you’re spending where, and how much you can put into savings. This is often a lot more detailed than many people want to deal with.

It doesn’t leave a lot of room for flexibility, unless you have a general “other” category you use to put money into a short-term high interest savings account.

This method also requires quite a lot of attention — this isn’t a “set it and forget it” sort of budgeting method. If your spending requirements change at all, you’ll have to know that and adjust the rest of your budget to account for it.

In a lot of ways this is fairly similar to the traditional budgeting technique, and requires a similar amount of time, tracking, and discipline.

Best for

Very disciplined people who have a detailed understanding of their income and expenses, and who don’t mind spending quite a bit of time tracking their budget every month.

Related: Best No Annual Fee Credit Cards In Canada

Values-based budgeting

The core idea behind values-based budgeting is that you build your budget to maximize your own happiness by spending more on things you care about, and less on things you don’t.

That sounds great, but it does require a bit of work, thinking, and discipline. Unfortunately, there are no budgeting methods that just let you spend however much on whatever you want, other than maybe winning the lottery. (Wouldn’t that be nice?)

So, how does a values-based budget work?

First, you do have to spend some time understanding how you are spending your money right now. If you go through the exercise of looking at your spending for the past 3 to 6 months, you’ll get a pretty solid idea of this.

Second, you have to decide which things you’re spending money on make you happy, and, more importantly, which of them don’t.

Once you’ve got this sorted out, the idea is that you start spending less money on things that aren’t contributing to your happiness, and spend more on those things that do make you happy.

Of course it’s slightly more complicated than that, because you do have to have a bit of an eye on the future through all of this. While spending loads of money on restaurants and video games is great in the short term, you may wish you’d done something else with that money in the long run.

It helps to sit down and set some concrete financial goals, then adjust your budgeting and savings to meet those.

For example, if you’re tired of paying rent and would like to eventually buy your own house, that’s a long-term financial goal that you should start working towards.

It helps to ask yourself a few questions like:

  • How much would you like to have in short-term savings to deal with things like car and house maintenance, or property taxes?
  • How much of an emergency fund do you want on hand in case you lose your job, or something else comes up?
  • When do you hope to retire?
  • What other savings goals do you have that are important to you?
  • How much outstanding debt do you have, and when do you want to get that paid off?

Once you figure these things out, you’ll have a better grasp on your financial goals. This will give you a better idea of what portion of your income you would like to dedicate towards savings and debt repayment.

At this point, with a solid handle on your expenses and financial goals, you’ll have a better idea of where you can spend less money on things that don’t make you happy, and more on things that do.

It’s not a simple system, to be sure, but if you’re clear minded and disciplined, you can adjust your spending to get closer to living the life you want to live, rather than just blindly spending on things that may not be important to you at all.

Pros

This budgeting method can help you spend your money more wisely on goals you design with your own long-term happiness in mind.

Cons

It does take a lot of work, thinking, and discipline to create and maintain this sort of budget. Over time it can become simply second-nature, but it can be difficult to get started, especially if you have a limited budget to begin with.

Best for

People who aren’t happy with the current state of their finances and who want to be more deliberate about how and on what they spend their money.

Pay yourself first or “reverse budgeting” method

The pay yourself first, or “reverse budgeting” method is actually similar to a few of the techniques we’ve already discussed.

Primarily the idea here is that you put money into savings before spending on anything else, and then freely spending whatever money is left over.

The goal is to make saving the top priority in your life, and to meet your long-term financial goals as quickly as possible.

Pros

Taking care of savings first will definitely help you reach your long term financial goals more quickly. Making saving a higher priority in your life is rarely a bad thing.

Cons

If you overreach when contributing to savings, you may find your day to day spending ends up a bit more curtailed than you like. When you first get started, part of your savings should maybe go into a high-interest savings account where you can access it quickly if an emergency or shortfall arises.

This method does require having a detailed understanding of your expenses so you know how much you can afford to put into savings each month without shorting yourself on other things.

Best for

People who already have a fairly generous budget or who know how much they can afford to put into savings without shorting themselves on essential expenses.

The no budget budget

This budgeting method is for people who:

  • have an income higher or roughly equal to the amount of money they’re spending every month, and
  • really hate the idea of creating and maintaining a budget.

The central idea is that you don’t have to have a budget if you’re always spending less than you earn. If you’re spending more than you earn, you either have to cut expenses until you aren’t, or you have to figure out how to raise your income.

If you are a candidate for this sort of budgeting system, the goal now is to increase the amount you’re putting into savings over time, without needing to really track your spending in too much detail.

Start by automatically depositing 10% of your income into savings every month and see how that goes. If you still have a surplus after a few months, increase the amount going into savings. If you no longer have a surplus, figure out how to decrease your spending or increase your income.

And so on. You will still need to spend a little time thinking about your finances, but not a whole lot. And if you keep increasing the percentage you’re dropping into savings every month, you’ll eventually have a nice nest egg.

Pros

This budgeting method is very simple and doesn’t require a whole lot of time and attention.

Cons

This isn’t a system for people who have a lot of extra debt, or who have problems controlling their spending. It really helps if you’re already running a surplus.

This system also lacks any concrete financial goals, so it’s not really going to help you achieve specific savings targets. It also won’t really help you figure out where you can adjust your spending on stuff that’s really unnecessary or unimportant.

Best for

People who are already financially stable and who don’t want to spend a lot of time thinking about their money or financial goals.

The hybrid

This isn’t really a formal budgeting technique, but is what eventually happens once you’ve tried a few budgeting systems over time.

For example, if you start with the 80/20 system you’ll eventually end up with a blob of money in savings that you’ll want to put to better and more specific use. At this point you may create some sub-savings accounts and start funneling your 20% contributions towards more specific goals.

On top of this, you may find that you still have trouble overspending on non-essentials like clothes or your hobbies. You might adopt a mini “envelope system” to help deal with that, where you set aside a specific chunk of money in cash or on a prepaid credit card that you are then allowed to spend on that particular thing.

Eventually we all end up customizing our budgets to support how we live and to meet our own financial goals. That’s what “the hybrid” system is – you taking full control over your financial life and tailoring it to best suit your needs.

Pros

Absolutely customized to how you live and the goals you’re trying to achieve. It may end up being a crazy Frankenstein’s monster mish-mash of budgeting techniques, but if it works for you that’s all that matters.

Cons

If you’re new to budgeting or still need to learn a bit more financial discipline, you’re probably not quite ready to adopt a hybrid approach.

We suggest you use one or two other techniques for a while at least, and get to the point where budgeting and saving is just a second-nature habit for you.

Once you’re on solid financial footing and understand where you spend your money and what your longer-term financial goals are, you will just naturally start to develop a hybrid budgeting system that works best for you.

Best for

Budgeting veterans on solid financial footing who have clearly defined and are working towards their concrete long-term financial goals.

7 budgeting tools and apps

Creating and maintaining a budget is a lot easier and more fun if you find a great budgeting tool that works for you and the budgeting methods you want to use. Here are some you may want to consider.

Application Platforms Cost Learn more
You Need A Budget (YNAB) * Web
* iOS
* Android
* Apple Watch
* Alexa
* $11.99 US per month, or $84 US per year
* 34 day free trial
Learn more
Mint.com * Web
* iOS
* Android
Free Learn more
Quicken * Windows
* Mac
* Starter: $39.99/year
* Deluxe: $62.99/year
* Home & Business: $94.99/year
Learn more
Banktivity * Mac
* iOS
* $69.99 US (one time purchase)
* 7 day free trial
Learn more
Moneydance * Windows
* Mac
* Linux
* iOS
* Android
* $49.99 US (one time purchase)
* Free trial with limited feature set
Learn more
Moneyspire * Windows
* Mac
* Personal: $49.99 USD (one time purchase)
* Pro (with invoicing): $69.99 USD (one time purchase)
Learn more

Bottom line

Budgeting is one of the most important things you can do to take control over your finances and more efficiently and effectively use the money you have coming in.

Seeing your debt vanish and savings grow is incredibly satisfying. I hope we’ve given you some new ideas for getting started with or revamping your budget system so you can start better achieving your financial goals.

FAQ

What’s the best budgeting technique?

The best budgeting technique really depends entirely on you. If you haven’t ever done any budgeting, you’ll probably want to start with something relatively simple, just to get into the habit of tracking your spending. If you’re a bit more advanced, you may want to look into a more complicated system.

Are there any free budget planners?

We offer a downloadable free budget planner that can help get you on track.

How can a credit card help me stick to my budget?

Credit cards can help you stick to your budget by helping you better manage your interest payments through low or no interest balance transfers, control your spending with prepaid credit cards, or to just save money by earning cash back or other rewards.

What’s the best credit card for me?

The best credit card depends on your current financial situation, financial goals, and what you value most. The best way to find out is to take the creditcardGenius Challenge and help us find the best cards for you.

Your turn

What’s your favourite budgeting technique or tool?

What tips do you have for people just starting out with their first budgets?

Let us know in the comments.