How to Create a Budget

Since the pandemic began, many people have lost their jobs or had their hours cut. Now more than ever, it’s evident that managing your money well is extremely important. If you’ve never truly sat down and focused on where your money goes, it’s time to learn how to create a budget.

How to create a budget that works: Separate needs from wants

Remember: Needs are things you must have. There are only 3 types of needs: food, water, and shelter. All the rest is extra. So take care of these things first. Ensure there’s enough money in the budget to cover your rent/mortgage, utilities such as water and electricity, and buying food.

After this comes everything else. Make sure you budget for those things, too.

Preparing for budget creation: Write down how much you earn and when you earn it

If you have regularly recurring income, write down when the money comes in and how much you get. If you’re a freelancer like me and your income is irregular, look at your records for the previous year and figure out an average of what you earn each month.


Make your money work for you: how to create a budget, Photo of a stuffed pig by Fabian Blank on Unsplash

How to create a budget: Write down the things you spend money on

Write down all the things you regularly spend money on; don’t leave anything out. These will be your spending categories

Some people recommend not having too many categories in your budget. They say it’s best if you have your fixed expenses listed and put everything else under “spending money.” I disagree with this advice, at least for myself. When I put everything under “spending money,” I forget what I was setting money aside for in the first place, and end up spending that money on something else.

The budget that works for me is having each item that I’m saving up for listed as a separate category. As we get paid, we put money aside under each category. I have a header category for recurring savings. These are things that I only spend money on about once a year, such as Christmas and birthdays. And I have a separate header category for one-time savings. For example, if we need to replace an appliance, it would go in the one time savings, since this only happens once every many, many years.

How to create a budget: Assign Jobs to Dollars

To make your money work for you, you must assign a job to every dollar. In other words, you must make a plan for your spending before you actually spend the money. To do this, look at the amount of money you earn each month and start distributing the funds you earn into each category. The money you place into the categories, when added together, must not exceed the amount you earn monthly. If it does, you have to make one of two changes: lower your expenses, or find a way to earn more money.

Working with your budget: Write down how much and when you spend

This is the harder but absolutely necessary part. You must write down what you spend. There are two types of expenses: fixed and variable. Fixed expenses are those you get a bill for regularly, such as your rent/mortgage, utilities, life insurance, etc. Variable expenses are those that you do not get a bill for regularly but that you spend money on, such as groceries, gifts, spending money, etc.

How to create a budget that doesn’t take up all your time

Budgeting is kind of a drag, and no one wants to spend three hours doing it every day or even every week. That’s why I use software to make my life easier. A long time ago, a friend told Dan and I about  YNAB, short for “You Need a Budget.” It’s a great app that allows you to enter expenses as you go. You spend time setting it up, but once that’s done, you can do budgeting on the fly. Set aside just 20 minutes or so on the day you get paid to distribute funds, and you’re good to go. Then, enter your expenses as they happen by using the app on your phone. If you’d like to give it the app a try, they give you a full month for free to see how you like it. I recommend using the free get started guide they provide to familiarize yourself with the software, and then giving it a shot. It’ll change your life. And no, this is not an affiliate link. I just really, really like this software and wanted to share. YNAB does have an affiliate program, but I have not signed up for it.

How to Create a Budget that Works for You

I’ve done a few things with my family that have left some people puzzled about our socioeconomic status. How can we afford to do all the travelling we do? We’re not rich by any means. We’re just good planners, and we happen not to care what other people think about our lifestyle. If you want to be able to afford those extra experiences you’ve been dreaming of, you’ll need too learn how to create a budget that works for you—and then stick to it.

How to Create a Budget and Stick to It: Save Up for What’s Important to You

When my husband and I took two months off for a road trip in the middle of a recession, we saved up for two years first, and then we travelled on a mostly shoestring budget. We spent the money on what was important to us.

When we took a couple of weeks to cycle 557 kilometers with our kids, we used our vacation days and the money we had set aside for vacation that year. And most recently, when we travelled for nine months with our kiddos in an RV, we had savings, we didn’t have debt, and one of us still worked on the road for a bit of income. We also rented our house back home, which helped.

Before I even get into how to create a budget, you should know one thing about our travels (and travelling in general): living on the road is a lot cheaper than living in a brick-and-mortar house, as long as you know where your money goes. Which is why you need a budget. The other reason you need a budget is so you can afford the things you want to do.

We’re not rich by Canadian standards. We live on mostly one income because we decided to homeschool our kids, and it’s easier for one of us to be home full-time to do that. We have a mortgage and responsibilities like most other adults. The reason we can afford to do the things we want to do is that we spend our money on what’s important to us—and we budget accordingly. If you want to afford extras, you’ll need to define what’s important to you, and put your money where your interests are (after you fulfill your financial obligations, of course).


How to create a budget that works for you,, Photo by Fabian Blank on Unsplash

Know your financial priorities

Dave Ramsey said that you should “stop spending money you don’t have, to buy things you don’t want, to impress people you don’t like.” Long before reading this bit of wisdom, we already knew we didn’t need to impress anyone with our “stuff.” We live life according to what’s important to our family. Some people may not agree that we’re doing it right, but they don’t get a say in our decisions; we do. We afford what matters to us by not buying “stuff” that doesn’t.

We buy old cars—travelling is more important to us than having a fancy car (we like looking at fancy cars, but we don’t need to own them). We buy almost everything second hand. We’re not afraid to decline outings that don’t fit within our budget. 

If you want to stop living paycheque to paycheque and afford the extras you love (in our case, travel), the first thing you need to do is to set up a budget. Whether you make a lot or a little, assigning a job to every dollar will give you the confidence to save for a rainy day as well as for the nice things you want to do or have. How you set up a budget will differ for each person/family, but here’s the basics everyone needs:

jar of coins. How to create a budget that works for you,

Fixed Expenses

Fixed Expenses are those things that you get a bill for every single month: rent/mortgage, electricity bills, water heater bills, heat, phone, etc. This should be the first thing you think about when you think budget. These expenses need to be covered before you set money aside for anything else.

Variable Expenses

Variable Expenses are those things you don’t get a bill for. Here you’d put groceries, clothing, fun money, etc.


While savings could technically go under variable expenses, I think it’s best to keep it in its own category, and make a conscious decision to put a set amount in here every month. In general terms, most people should have a minimum of 3 month’s worth of expenses set aside, though 6 months is better. If you’re an entrepreneur, 6 to 12 months is what you should aim for. This is also known as your “oh sh**” fund. If something bad happens, you know you’re covered for that amount of time.

Other Budget Categories and Sub-categories

Some people like to keep their budget as simple as possible and only have a few categories. I prefer to be more specific with my budget, so I can remember what I’ll be spending/have spent money on.

We keep two separate budgets: one for our family and one for my business. Today, I’ll tell you a bit about how we set up our family budget. We have categories and sub-categories, and Dan talked me down from the amount of categories I originally wanted. We still have quite a few, but I feel like this keeps us more organized and more intentional about where we put our money.

How we set up our budget 

First, we create our categories and sub-categories on a Google Sheet. Here are our current categories.

Medical Expenses
Fuel & Transportation
Hair Cuts
Gym & Sports
Family Spending $ & Entertainment
Stuff I forgot to budget for
Spending Money
Mariana Entertainment & Spending $
Mariana Sports & Fitness
Mariana Education & Hobbies
Homeschooling Materials & Curriculum
Homeschooling Field Trips & Events
Homeschooling Music Lessons
Homeschooling Art Lessons
Homeschooling Other
Mortgage & Accommodations
Water Heater
Property Management
Tax on Rental Income
Storage Unit
Cell Phones
Internet & Home Phone
Software Subscriptions
Emergency Fund
Life Insurance
Auto & Home Insurance
Health Insurance
Auto & RV Maintenance
Home Maintenance
House Renos
Kid1 Birthday Party
Kid2 Birthday Party
Kid3 Birthday Party
Dan Birthday
Mariana Birthday
Vehicle Replacement
Computer Replacement
Fall Fair
Church Collections
Plan Canada
JumpStart in Memory of Tim Stevenson
Ehler-Danlos Society
General Giving

Here’s a little info about our budget categories.

Variable Expenses

Under variable expenses, we put anything that we don’t get a bill for and that wouldn’t go under savings or donations.

Groceries is for food as well as personal care items such as shampoo, deodorant, etc.

Because we’re currently living in a building where we have to pay for laundry, we have a budget category for that. Once we move back into our house, where we have a washer and dryer, that category will come out of the budget.

Under medical, we put any prescriptions, over-the-counter medications, my joint braces, and complimentary medicine such as physiotherapy or massage therapy.

Fuel and transportation is for gasoline and commuter bus fares, etc.

Hair cuts are pretty self-explanatory, but since Dan started cutting his own hair, we don’t put much money in here.

Under gym and sports we put our family gym membership and the kids’ sport activities.

Restaurants is pretty self-explanatory.

Family spending money and entertainment is for anything not covered by other categories, and for putting money aside for outings together. I separate this category from restaurants so we’re more intentional about stopping at drive-throughs, etc. If restaurants is a separate category and there’s zero funds in there, we re-think the drive-through.

Clothing and gifts are pretty self-explanatory.

Stuff I forgot to budget for was a genius idea by my awesome husband. Basically, we put a bit of money in here every month, and if something happens that we forgot to set money aside for, like an outing with friends or someone’s milestone birthday, or something of the sort, we use the money in this category to cover it.

Dan and I have separate categories for our “fun money.” We each get a bit of “no questions asked” money to spend each month. Dan likes to keep his simple and just put everything under one category (“spending money”), but I prefer to separate mine so I’m more intentional about saving up for the things I want to do.

I created a homeschooling category and sub-categories so we can be intentional about setting money aside for homeschooling expenses, including field trips, materials, and specialty lessons.

Fixed Expenses

The fixed expenses are pretty self-explanatory. Anything we get a monthly bill for goes under here.

Rainy Day Fund

This is one of the most important parts of your budget if you want to stop living paycheque to paycheque. Every month, put some money away for a rainy day. Under here we have our “rainy day” sub-category, should anything happen like a job loss. We also put our insurance under here, as well as home maintenance in case anything goes wrong with the house.

Saving Up (recurring)

Things that we have to save up for every year go under this category. That includes money for birthday parties, and saving up for the fall fair, an outing we really enjoy, but that can get expensive. Saving up intentionally for the fair means we can attend it guilt-free.

We also put vehicle and computer replacement under here. We don’t replace these every year, but we need to set money aside for these each month, so that when the time comes to replace them, we’ve got the funds.

Saving Up (one time)

I created this category for items that we decide we want to get but that were not in the budget originally. For example, we eventually want to buy a robot vaccuum, but those things are expensive. So when there’s a little room in the budget, we’ll intentionally start setting money aside to buy one, and the money we set aside will go under this category.

Quality of Life Goals

Under here, we put our long-term savings for retirement, education for the kids, and a yearly vacation (or money for more long-term adventures).

Debt Repayment

We don’t have a lot of debt, which is one of the reasons we can afford to travel. We do use a credit card and pay it off in full at the end of each month. We use a budgeting software that sees all credit card usage as debt (and rightly so), so even though all the money we use from the credit cards gets paid off each month, we still have a line in our budget for debt repayment. As we use our credit card, the software automatically takes money from the budget and places it into the repayment line.


Last but not least, we also set money aside to give away for things that are important to us. Each year, we donate to Jumpstart in memory of our friend Tim Stevenson, who was killed in a car accident in 2013. It’s hard to believe it’s been almost six years since it happened. We miss him. Donating to Jumpstart, an organization that was important to him, helps keep his memory alive for us.

We sponsor two girls through Plan International, so we make sure to set that money aside for that each month as well.

This year, we also want to donate to other causes that are important to us, including the Ehlers-Danlos Society and Birthright.

We’ve also made a donation for Dan’s cousin, Arya, a wonderful 4-year-old girl who unfortunately has been diagnosed with terminal brain cancer. Donating some funds means we can help them get to the United States for experimental treatment, since they’ve done everything they could do for her in Canada.

Finally, we set some money aside for the weekly church collections, and we put some money aside for other donations we might want to make that we have not thought about before (e.g. disaster relief, etc.)

There’s one thing we forgot to put into our budget that I’ll add later: babysitting. Adding a sole “babysitting” category into the budget means we’ll be more intentional about saving up for outings.

Too many categories?

white piggy bank: how to create a budget that works for you. Photo by andreas breitling on pixabay


We have a lot of categories in our budget, but being this intentional about every penny works for us. If a budget this long overwhelms you, you could do what many other people do, which is to simply have “fixed expenses” and its sub-categories, and put everything else under “variable expenses.” So, are you ready to create a budget that works for you? Good! But while creating a budget is an essential step, it’s not enough. You must assign money to each category.

Assigning a job for every dollar

After we’ve written down our current budget categories and sub-categories, we look at our monthly income and distribute funds.  We recommend always distributing funds in fixed expenses first. What you put money into next will depend on what’s important to you, but putting money in savings as a second priority is usually a good idea. After that, you can choose whether donations or variable expenses will be prioritized.

We input the amount of money for each category into the spreadsheet we created. Then, each month, we work from this spreadsheet to distribute funds into YNAB—the budgeting software we have been using for a few years and that we highly recommend.

Budgeting software saves the day

Once our funds are distributed, we make sure we look at the budget before making purchases. If there’s no money in that category, we must move money from another category or simply not make the purchase. Once we’ve bought something, we input it into YNAB, which automatically deducts that money from that category. Using this software, we always know how much money we’re spending and how much money we have left to spend.

YNAB also gives you reports, which come in really handy when tax time arrives. You just have to be sure to save your receipts, whether physically or virtually.

Take control of your money so your money doesn’t control you

The best thing we’ve ever done for our finances was to create a budget and try to stick to it as much as we can. Having a budget helps us stay out of debt, save for a rainy day, and still be able to pay for the things we like, such as adventure travel with our kids. It also gives us the confidence to say “it’s not in our budget” when our kids ask for impossibly expensive gifts or we’re asked to do things we shouldn’t do if we want to be able to afford what matters to us.

Do you have a budget?

I stopped saying “I can’t afford it.” It’s liberating.

Way back when, I was a poor, broke, indebted university student. I was barely making ends meet while working two jobs and pursuing a dual degree. More often than not, when I was asked to do something or go somewhere, my answer was “I can’t afford it.” It didn’t quite feel embarrassing (I was used to being broke), but it did feel like a downer – and like I didn’t have a lot of control over my situation. Truth be told, at the time, I really couldn’t afford much more than tuition, books, and rent (I got some help with the food situation – but that’s a story for another day).

Fast forward to a few years later—all my debt was paid off, and I was in a good financial situation. But I often still said “I can’t afford it” when I was asked to do something. Then I stopped to think, and I figured out that in reality, I could indeed afford it, if I moved some money around. The truth was, though, I didn’t want to do that – I had different financial priorities.

Now, when I’m asked if I want to go somewhere or do something, I never say “I can’t afford it.” Instead, I proudly say, “it’s not in my budget.” These simple words don’t mean that I’m broke. They mean that I have full control of where my money is going, and I have the confidence to stand by my priorities. You should try this – stop saying that you’re broke, and start saying that it’s not in the budget.

What’s that now?

You don’t have a budget?

Continue reading “I stopped saying “I can’t afford it.” It’s liberating.”