Save. Spend. Splurge.

How to create a budget

I’ve been requested several times to write a post on how to do this, so here it is. I will be posting on how to cut your budget later.


Gross income is what they tell you that you make when you’re negotiating a job offer.

Net income, is what you actually get in the bank account after everyone dips their paws into your honey pot and takes out their cut, and this would include:

  • Prepaid taxes (also known as ‘tax withholdings’ in the U.S.
  • Health insurance
  • Social Security (also known as CPP or Canadian Pension Plan)
  • Employment Insurance (EI in Canada)
  • ..and whatever else you have to pay for out of your cheque

If you don’t know your net income, you should at least know how often you get paid*, so look at the NET amount that gets put into your bank account or is printed on your cheque, then figure out what it should be monthly.

So if you get $2000 in your bank account bi-weekly (every 2 weeks), you earn $4000 net a month.

THAT is what you should budget with.

*Because everyone loves payday. It’s my favourite day of the week.

You also do not have to break it down the way I have with categories.

Pick and choose what works for you.


Now you’re wondering WTF a “fixed” expense is. It’s basically anything you MUST pay each month that doesn’t change as an amount.

This is stuff like Rent, or even your Cellphone if you don’t go over your minutes or data plan.

If you want a general idea of what fixed expenses are, here’s it is.


Just make a list of all the categories.

  • Rent
  • Mortgage Payments
  • Car Payment
  • Debt Repayment (your minimums, assuming you aren’t incurring more debt)
  • Cellphone (assuming you don’t go over your minutes and/or have an unlimited plan)
  • Health Insurance
  • Car Insurance
  • Home Insurance
  • Almost-any-kind-of-Insurance
  • Transportation — This can be a fixed expenses if you buy a metropass for instance


Just like fixed expenses, you have variable ones that are under your control each month.

For the second part of your budget, figure out what your NECESSARY variable expenses are. This does not include eating out or entertainment.

I’m even debating putting Cellphone/Telephone/Internet on there as “necessary”, but for the sake of normalcy, let’s call them necessary.

Those are UNNECESSARY variable expenses for the purposes of setting budget priorities.


  • Groceries
  • Utilities to run the home — Electricity, Gas, Water, Heat
  • Office — Postage, Delivery, Paper, Pens, Pencils and so on
  • Household Supplies — Toilet paper, Cleaning supplies
  • Toiletries — Toothpaste, Soap, Toothbrush, Floss, Shampoo, Conditioner
  • Cellphone/Telephone
  • Medicine — Vitamins, prescriptions, pills
  • Parking/Gas — If you have a car
  • Internet
  • Pet Food
  • Basic Clothing
  • Grooming — For a haircut twice a year
  • Home maintenance
  • Furniture purchases

Now that you have fixed expenses, you should list all the rest that is technically “fun” and unnecessary.



  • Eating Out
  • Entertainment
  • Alcohol — Drinking
  • Clothing — Beyond Wardrobe Essentials (even my list is a bit over the top..)
  • Treats
  • Starbucks/Teavana — Buying coffee outside, or other drinks
  • Spa — Facials, Massages
  • Grooming — Beyond just a haircut, includes Manicures, Pedicures
  • Books/Magazines — There is a library for a reason
  • Travel
  • Fees — They’re generally unnecessary if you avoid ATMs and incurring fees


You will notice that you have separated your budget categories out by Fixed, Necessary Variable and Unnecessary Variable.

Those are your PRIORITIES of where you should think about adding or cutting money as required.

The actual budgeting comes in, when you apply percentages to them — here’s an ideal household budget with its percentages.




So if for instance, you’re spending more than 35% on Shelter, and more than 25% on Life (going out, eating, having fun), you need to either cut back in one or the other.

I’d actually try and cut back on ALL the expenses, including fixed ones (get a roommate, move to a cheaper apartment that’s a studio not a 1-bedroom), and see what you end up with.

You can’t have everything if you don’t have the net income to pay for it and save money.

Remember to use your net income against those percentages.

You probably haven’t been tracking your expenses at all, so in the meantime just estimate what you THINK it costs, track your expenses, and see what the actual cost per month turns out to be.

At the end of the first month, you will probably notice (as I did), that what I THOUGHT I spent, was way off from what I actually spent. In a bad way.

Once you continue to diligently track your expenses, and learn where you make mistakes, adjust your budget accordingly.


Here are some basic personal amounts to start with, and you can adjust as you go along your budgeting path:

(Real numbers are better, especially for fixed expenses like rent or mortgage or your debt.)

Note: These numbers are for a single person renting an apartment in Canada without a car and no debt.

  • Rent: $700
  • Apartment Insurance: $15
  • Cellphone: $50
  • Transportation: $130
  • Groceries: $200
  • Utilities: $50
  • Household Supplies: $25
  • Toiletries/Medicine: $25
  • Parking/Gas: $250
  • Internet: $50
  • Clothing & Gifts: $50
  • Eating Out: $50

Total = $1595 a month

As you run through the list, you may be thinking: Hey I pay more/less than that!

That’s where you have to adjust for yourself, and add in or remove categories that don’t apply to you.



  • Cassie

    If you’re paid $2000 every two weeks, it actually averages out to $4333 a month over the course of the year. Not that I argue with using $4000 as your budgeting amount, it makes for easier forced savings πŸ˜‰

    • Mochi & Macarons

      You’re absolutely right. πŸ™‚ I didn’t do it by year taking into account that we get a third paycheque at times; I did it by month instead.

  • Paige

    Every ideal budget I see has a very small amount allowed for utilities, even in the U.S. We are a family of 4 living in a small house. Just electric, gas, and water run $250 – $300 per month. Where does everyone find such inexpensive power & water?

    • tomatoketchup

      The South. My combined electricity and water bill (no gas) in an average month is $45-50, though I’m just one person living in an apartment that’s about 1000 square feet instead of in a house. The winters are relatively warm down here, so I don’t ever use much heat.

      • mochiandmacarons

        Thanks for the note on that. My winter bill was fairly low for electricity when I was in Montreal, because they had these vents with hot air throughout the building (from the heaters that warm up water for the whole building), so we didn’t use much.

        Plus we had an amazing view with lots of sun all the time.

      • Paige

        We do live in the South πŸ™‚

    • Mochi & Macarons

      In Quebec, water was free. We didn’t pay anything.

      Electricity was included in my rent (all utilities paid).

      In Ontario, with 4 people in a fairly medium-sized house, electricity in the winter months is about $100 a month.

  • Jose

    I also use an envelope method of budgeting with Quicken. It makes it so much easier to allocate funds within your budget and track them.

    • Mochi & Macarons

      I tried the envelope method when I first started budgeting and had a headache with counting coins, etc.

      My method is with credit cards which I use like debit cards (I pay each transaction off immediately).

      If my bill at the end of the month doesn’t come to a $0, I go through each transaction, match it with the payment, and see where I was off.

      I’ve caught plenty of errors (I accidentally paid too much or too little), and some of them weren’t even my fault — the credit card company switched systems and didn’t record my last 2 payments for items, but I had the record in their sister banking system.

  • Marianna

    Hi, I have question. How does it possible to spent 200 dollars for food for one person? How does your menu looks like? I have family of 2 adults and one baby. We do not buy food in a box, Everything fresh – meat, fruits, vegetables … We usually spend $700-800. I always wonder, how people spend so little?

    • Mochi & Macarons

      Good question. Therein lies the trick, because I personally spend $200 just for myself (up to $400), but only if my other half is paid for by BF.

      If I were alone, that bill would be about $300 just for me alone.

      A few ways your bill can be lowered:

      1. Eat less meat / seafood / poultry — We go vegetarian about 3 times a week, and I find that the lack of meat really shows in the budget. When we ate meat daily, we were spending about $600 – $700 for the 2 of us.

      Eggs are a good substitution for a dish — I like quiche. πŸ™‚

      2. Look out for where you can find a local butcher or store and compare prices.

      Surprisingly, we went to Wal-mart recently and saw a pack of 6 chicken drums for $5. That’s only SLIGHTLY cheaper than going to a local butcher and buying organic chicken which tastes a lot better (around $6).

      I think if you shopped around and depending on what kind of meat you are willing to buy (organic or not), you can find cheaper cuts in Chinatown or other ethnic grocery food stores (we buy seafood in Chinatown, and some cuts of beef, but not chicken).

      3. Organic or not makes a difference. That’s a price choice you have to make.

      We buy organic only when it suits us (although now we’re thinking of the workers who have to touch the pesticides in bananas for instance), nevertheless, we are willing to increase the budget for better food.

      4. Look at what you’re buying in terms of value for your family versus a treat.

      An apple is not an apple. I really enjoy eating Honeycrisp apples, but I bought Gala ones which are half the price and about the same taste, although not quite the same.

      Once in a while I buy a Honeycrisp apple because I love them so much.

      I also buy specialty fruits like mangoes and pomegranates only when they’re in season and if they’re a good price ($5 is not uncommon for 1 pomegranate here).

      5. Watch your liquid intake

      As an example: We go through about 3 bags of milk a week. This is because I drink milk straight in a class, and BF uses a whole cup of hot milk to make his coffees.

      If we drank about 3 bags of milk in 2 weeks, the grocery budget would be about $6 – $7 less a month.

      Other things that people buy and don’t realize is a lot of money, are things like juice, or other beverages.

      We don’t buy sweet beverages unless it’s once in a while, and a treat for us. We generally avoid juice, and pop.

      Hope that helps πŸ™‚

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