Did you know that almost 51% of Canadians don’t know how to manage a personal budget? This shocking statistic results from a complete lack of personal finance education in our public schools. Moreover, a lack of budget planning has led to the average Canadian having $1.77 in debt for every $1 of income in 2019 according to Statistics Canada.

While this article isn’t a complete guide to building a budget, we’ll try to get you started with the basics.

What is a Personal BudgetDocuments including a personal budget spread across a table

Managing money with budget is one of the basic keys to your financial health. Budget planning involves reviewing your income and expenses and creating a plan to guide your financial decisions. Budget planning is an ongoing process that you evaluate each month to ensure that you are on track for your long-term financial goals.

How to Create a Personal Budget

To create a personal budget, it helps if you’re familiar with software programs such as Excel, Numbers or Google Sheets. If you’re not familiar with Google Sheets, you can check out this tutorial which shows you how to use their budget template.

There are three factors that you will document while budget planning.

Net After-Tax Income

After tax income is the amount of money left over after paying taxes. If you’re employed, your employer likely pays your taxes on your behalf. (From your own earnings sadly, not from the goodness of their own heart). In this case, your paycheque is your after-tax income.

If you’re a small business owner, this number becomes a little more challenging to predict. Your after-tax income will be the amount of money that you’re left with after paying expenses and taxes; or your net operating income after paying taxes. Though it can be helpful looking at your past two years of taxes to determine this number, it becomes more challenging if your business is growing or if there are large fluctuations each year.

We recommend that you look at your projections for your net operating income over the next year. Deduct what you expect to pay in taxes from that number. Now reduce the result by 10%. If you earn less than you expect, you’ll have a margin of safety. If, on the other hand you earn more than you expect, you’ll have additional savings left over.


Monthly expenses are probably the most important factor for managing money. If you’re one of millions of Canadians participating in the ‘rat race’, endlessly trying to increase your income, this fact may be surprising. The reason that expenses are more important than income for your monthly budget comes down to one oft-unconsidered factor: tax.

Yes, tax, one of the two certainties of life. Earning an extra dollar only adds a percentage of that dollar to your after-tax income. For this reason, it is easier to manage money by controlling your monthly expenses than by increasing your income.

The first step in managing your expenses each month is to calculate how much you spend – and are willing to spend – on regular monthly expenses.

Fixed expenses are the easiest ones to calculate. These expenses don’t change from month to month, such as your rent, car payment and health insurance.

Variable expenses can be more challenging to manage. These expenses are costs like groceries, gas and dining out. The best way to determine what you spend on variable expenses is to keep track of your receipts over a three month period. Next average out these expenses and determine whether you can maintain the current level of spending or whether you should reign these expenses in.

Once you’ve determined how much you’re willing to spend on these items each month, the next step is to track your spending. Keep every receipt and review your bank and credit card statements to make sure you’re staying on budget.


Savings are what you have left after you pay all monthly expenses from your after-tax income. If this number is negative, we’ve got a problem. Go back and review your expenses and find ways to save money and increase your savings.

A good rule of thumb for saving money is to ensure that you save 10% to 20% of your income each month. You can use these savings for long-term goals like retirement, buying a new home or planning for a dream vacation.

Why a Personal Budget is So Important

Managing money through a budget is key to your long-term financial health. Budget planning helps you create savings habits and track your spending. You may have heard the phrase ‘live within your means’. This adage suggests that you spend your money wisely, avoid living on credit and keep your financial house in good order.

Mother with her two toddlers on a couch with a tablet

Why is a budget so important to managing money? Well life happens, the unexpected occurs and tragedy could strike at any time. Managing money ensures that you always have a safety net. Budget planning helps ensure that when you reach retirement, there’s a nest egg waiting for you. This nest egg will allow you to relax and enjoy the golden years of your life.

Don’t have a personal budget? Don’t fret, we’ve got you covered. You can download your personal budget planner here.

About the Author

The column's goal is to level up your financial knowledge and help you avoid common pitfalls and mistakes along the way. Although money management sometimes seems like an intricate task, it doesn't have to be. The advice here is common sense and simple to follow. The first step to a better financial future starts here, and it's never too late to begin. Adam Stapley is a Mortgage Broker with Pineapple Financial and author of the personal finance Newsfeed CanadianFinanceGuide.ca. He is intensely passionate about helping Canadians build wealth through the power of real estate. Many of the articles in this column come from Adam's experience assisting Canadians to understand and shape their personal finances. Pineapple Financial Lic #12830 CanadianFinanceGuide.ca adam@canadianfinanceguide.ca