Creating a personal budget

November 12, 2025

Some people shy away from making a budget because it can feel like an overwhelming task and it may feel too restrictive. Preparing a budget is an important step to help you control your money and know how it is being used to meet your needs and achieve your goals. With a budget in place, individuals have a better understanding of their income sources and the amount of money coming in to service loan payments and save for their future. Budgeting begins with creating a cash flow statement used to track the flow of income and assess financial habits. A cash flow statement will answer important questions such as:

• Where does my income come from?
• How much money comes into the household?
• Where are my funds being spent?

A cash flow statement will calculate cash flow surplus or shortfall by subtracting expenses from net income. When more money comes in than goes out, there is a cash surplus. When more money goes out than comes in, there is a cash shortfall.

Collecting income information

The first step to creating a cash flow statement is to include all forms of income. This can include:

• Salary and wages received from employers. Record your total net income, which is the amount of money received after all deductions have been taken. Deductions can include federal and provincial income tax, and employee contributions to Employment Insurance premiums (EI) and Canada Pension Plan (CPP).
• Investment income received annually. This can vary because of fluctuations in the market and changes in interest rates.
• Business income earned. This includes money you earn from a profession or trade, manufacturing, services provided, or any other activity carried out for profit.
• Government of Canada payouts such as the Canada child tax benefit (CCB), GST/HST credit, Old Age Security (OAS) along with Guaranteed Income Supplement (GIS) and Canada Pension Plan (CPP). For many of the government programs, eligibility and amount received depends on factors like income, family status and age. Qualifying for receipt of the funds and the amount received may vary from year to year. Since these payouts can be unpredictable, be cautious and understand the qualifying criteria and calculation used to determine the payout amount to ensure if these payouts can be relied upon in your budget.

Understanding expenses

Tracking how your money is being spent is an essential part of creating your budget. Every dollar spent affects your finances. Evaluating two to three months of credit card and bank account statements is a good place to start building an understanding of your spending habits. There are two types of expenses. Fixed expenses, consisting of necessary items that you cannot cut from your spending without significantly reducing your standard of living. These include most housing expenses such as rent or mortgage payment, property taxes, heat and hydro and property insurance, and money for groceries, transportation, clothing, and daycare for young children.

The other expense category is for discretionary spending. These are flexible expenses for nonessential items such as dining out or other entertainment related activities, vacations, and hobbies. If individuals are looking to decrease their expenses, focus on discretionary expenses as these tend to be easier to reduce. Some expenses can be difficult to categorize as the activity may be essential, but the amount spent on the activity can vary significantly.

Calculating cash flow

Once you have tallied up all your forms of income and your expenses, and categorized them as fixed or discretionary, your cash flow can be calculated by subtracting your expenses from your income total. A positive number means you have a cash surplus. A negative number means there is a cash shortfall.

If there is a cash shortfall there are ways to consider to help decrease it:

• Increase your income. Consider investigating if there an opportunity to work extra hours at your current job, negotiate a salary increase or search for a higher paying job within your current employer or with another firm. There could be a possibility of turning a hobby or specialty skills into a side business.
• Adjusting expenses. This is often a more practical option to help balance your budget and create positive cash flow. Review your costs and assess where you might trim expenses. Some options may include consolidating debt, eating out less frequently, exploring ways to reduce gas or electricity use and comparison shopping to find best deals.

The best time to evaluate your personal and financial goals is when you have a cash surplus. Ensure you have enough emergency savings that are readily accessible if unforeseen circumstances happen such as an illness that may reduce your ability to work or job loss. The guideline is to have three to six months of net income or expenses set aside. Evaluate your midterm goals such as reducing or paying down existing debt, saving for the down payment on a home, or purchasing a vehicle. Assess the amount needed to meet these goals and assign a time horizon for completion. Ensure this is realistic and can be achieved within your budget. If it is determined that the goal is unattainable then adjustments may have to be considered. This can include increasing the time needed to reach the goal, reassessing and reprioritizing the goals or reducing the expectation of the goals. Understand your long-term objectives which may include regular contributions to your registered retirement savings plan (RRSP), paying off your mortgage or setting aside funds for a child’s post-secondary education. Prioritize your goals and assign funds monthly to each category.

Budget hints and tips

There are several ways to help stay on track with a budget including:

• Knowing your money. Try to avoid using overdraft or credit for regular spending. Instead use cash to make purchases.
• Making debt repayment a priority. Reducing monthly debt payments will allow for additional cash flow as the amount that was used for debt repayment can be allocated to savings goals. Some strategies for debt repayment include paying off the debt with the highest interest rate first, or if possible, increasing the frequency or the amounts of debt payments.
• Paying yourself first. Deposit funds into an account as soon as you get paid. This can be completed by setting up automatic transfers between chequing and savings or investment accounts. Take advantage of employee RRSP savings programs with automatic payroll deductions.
• Keeping separate accounts. Keep an everyday spending account separate from your savings account. This helps to keep funds for regular expenses separate from saved funds and may help reduce overspending or spending on impulse purchases. Be sure to check on the possibility of bank fees associated with multiple bank accounts.
• Matching funds. For every dollar spent on a leisure activity, deposit the same amount of money in savings.

Reviewing your budget monthly will help you stay on track with spending and savings goals. Compare your actual spending with your projected spending. You may find you did well in some areas, while in other areas improvement is needed. Adjust your budget if needed to cover shortfalls or to reflect an increase in income or new goals that may come up. Creating a budget puts you in control of directing your money to personal and financial goals and rewarding yourself for your successes.

FirstOntario Credit Union in partnership with Aviso Wealth has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds and other securities are offered through Aviso Wealth, a division of Aviso Financial Inc. The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This should be considered as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds. The views expressed are those of the writer and not necessarily those of Aviso Wealth.