Making your budget

Step 1: prepare

The budgeting cycle: step 1

An image of the budgeting cycle
Description

The diagram shows a blonde woman with a pink shirt looking thoughtfully at the budgeting cycle.

The diagram has a light blue background. The bottom of the diagram has a green strip which resembles grass. In the centre of the image is a large circle which represents the budgeting cycle. On either side of the circle there is an image of the blonde girl. On the left-hand side of the circle the blonde girls is sitting on a brown wooden bench with a laptop on her lap. There is an image of a lightbulb above and to the right of her head, she is smiling and pointing her finger in the air while looking up at the lightbulb. On the right-hand side of the circle the blonde girl is standing looking at the budgeting cycle. She has one hand on her hip and one hand on her chin to show that she is thinking about the budgeting cycle.

In the center of the diagram there is a dark blue circle outlined in white. The words “Budgeting cycle” are written in white in the middle of the dark blue circle.Attached to the outside edge of the dark blue circle outlined in white, there are four evenly divided sections to represent the four steps in the budgeting cycle. Each of these four main sections curves around the outside edge of the dark blue circle. These four sections are each in the shape of an arrow to illustrate the direction of the budgeting cycle. The four arrows join together to form a circular shape.

The curved arrow in the top left corner of the large circle is yellow and is outlined in white. Within this yellow arrow it says “Step 1: Prepare” written in white. This is the only section around the circle that is shaded in a bright colour to represent that this is the current step within the budgeting cycle. To the right of this writing there is an image of a clipboard with a checkmark. Underneath the words and the image, it says “Beginning of the month” in small black letters. The yellow arrow is pointing to the right where the yellow arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the top right of the large circle. Within the light grey arrow it says “Step 2: Create” written in white. To the right of this writing there is an image of list written on a piece of paper with a pencil next to the piece of paper.

Underneath the words and the image, it says “Beginning of the month” in small black letters. The light grey arrow is pointing downwards where the light grey arrow joins with a curved dark grey arrow. The dark grey arrow is outlined in white and is at the bottom right of the large circle. Within the dark grey arrow it says “Step 3: Implement” written in white. To the left of this writing there is an image of a list written on a piece of paper with three gears linked together next to the piece of paper. Underneath the words and the image, it says “Throughout the month” in small black letters. The dark grey arrow is pointing the left where the dark grey arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the bottom left of the large circle. Within the light grey arrow it says “Step 4: Review” written in white. To the left of this writing there is an image of a list written on a piece of paper with a magnifying glass next to the piece of paper. Underneath the words and the image, it says “End of the month” in small black letters. The light grey arrow is pointing upward where the light grey arrow joins with the original yellow arrow from the beginning and the cycle continues.

 

The goal of step 1: prepare is to estimate how much money you will receive, pay, and save in the budgeting period.

This is an estimate and you will have the opportunity to adjust your budget if needed. For example, if you forget about an expense item when estimating your budget, do not give up or get discouraged! You can always adjust your budget which will help you to plan better in the future.

Also on this page

 

 

Estimating your income

Net income is the total amount of money you take home from your paycheque. This is the total amount minus taxes and other deductions.

Net income is the money you receive.

There are many different sources of income. Whether your main source of income comes from a paycheque or some other method, you need to know how estimate your income. This will help you to manage your income in order to cover your expenses.

Sometimes employment income is very predictable, like when you are paid a salary. However, sometimes there can be some difficulty in estimating income amounts, such as when employment income or wages are variable or irregular.

Wages are tied to the employee having to work in order to get paid. For example, some employees do not have paid sick leave, and their income will drop if they cannot work.

Other types of employment income can also vary in amounts and frequency, for example, when employment income includes tips and/or commission. Employment income could also be irregular. Irregular income includes contract work, consulting, seasonal work, and odd jobs. Both variable and irregular incomes can pose challenges when budgeting because it involves estimating incomes.

If your employment income is irregular or variable, you are encouraged to save during months when you have higher income to cover months of lower income. This means covering basic monthly expenses and, if possible, saving the rest of your money in an emergency fund for future months. This way if you find yourself with an income shortage, you can cover it with your savings.

Transcription — Irregular and Variable Income

[Emilie and Steve are standing in their kitchen. Emilie is on the phone and Steve is cooking.]

Narrator: This is Emilie and Steve.

[The scene changes to Emilie sitting at her desk in an office setting, talking on the phone while looking at a computer monitor.]

Narrator: Emilie works in sales and some of her monthly income is based on commissions. Therefore Emilie's employment income is considered to be variable.

[A graph showing Emilie's income rising and falling in an uneven pattern slides onto the screen from the right.]

[The scene changes to Steve standing on a street in a construction zone, using a jackhammer on the pavement.]

Narrator: Steve works as a construction worker and therefore Steve's employment income is considered to be irregular because his job is seasonal and dependent on the weather.

[A raincloud enters from the left side of the screen and sends Steve running for cover, while a graph showing Steve's irregular income slides in from the right of the screen.]

[The scene changes and the screen is split in half horizontally. Emilie appears in the top half of the screen with a graph of her variable income. The points on the graph are illustrations of paycheques. Steve appears in the bottom with a similar graph of his own irregular income.]

Narrator: Since Emilie has variable income and Steve has irregular income, they both save some of their monthly income during months when they have higher income.

[A money safe appears at center screen and money from the paycheques depicted on both Steve and Emilie's graphs flies into the safe.]

Narrator: They know that this will help them to cover certain months of lower income.

[Money flies from the safe to three points on Steve's graph where he did not receive any income.]

[The scene changes to a wooden desktop. A notebook and pen are on the left. To the right, there is a coffee cup at the top, and below that is an envelope labelled "emergency savings" next to a pile of receipts and a calculator. The words "monthly expenses" are written at the top of the page in the notebook. The following items are listed below that title: "housing", "food", "payments to LIT/estate", and "transportation".]

Narrator: In order to save during months when they have higher employment income, Emilie and Steve cover their basic monthly expenses first and, if possible, they save the rest of their income for future months.

[The list of items in the notebook is checked off and additional money is shown flying into the "emergency savings" envelope.]

[The scene changes to Emilie sitting at a desk in her home office as she writes out her monthly budget. A close-up of what she is writing slides in from the right.]

Narrator: Emilie is very careful when estimating her monthly income because some of her employment income is based on commission. Emilie knows that, on average, she makes about $500 each month from commissions.

[Emilie writes "employment income" at the top of the page and underneath that she writes "base income", followed by a plus sign for addition, and the word "commission". She writes "$2000" beside "base income" and "$500" beside "commission".]

Narrator: Emilie takes caution and plans her monthly budget based on her base employment income, plus the $500 in commissions. Emilie knows that it is important to only include income that she is confident she will receive when estimating her income for the month.

[Emilie writes an equals sign and adds up her base income and commission to write out "$2500".]

[The scene changes to Emilie pushing a shopping cart through a grocery store.]

Narrator: If Emilie overestimates her monthly employment income by including more than her average monthly commissions, then she risks not having enough income to cover all of her expenses in her monthly budget.

[Emilie pushes her shopping cart up to the checkout where a cashier begins to scan her items. Emilie pulls out her wallet to pay, but finds it empty.]

[The scene changes to Emilie and Steve's house, covered in snow.]

Narrator: During the month of January, Emilie gets sick and is unable to work for one week; therefore Emilie does not receive the full employment income which she has planned to receive at the beginning of the month.

[Emilie enters the kitchen in her pajamas where Steve is cooking. Emilie blows her nose and reads her income statement sadly.]

[The scene changes to Steve writing at the home office desk this time, while Emilie walks in from the right.]

Narrator: Steve is currently not working as it is the winter and therefore Emilie and Steve find themselves with an income shortage for the month of January.

[A close-up of what Steve is writing appears on the right side of the screen. He has written "January budget" at the top of the page. Underneath he writes "total income" and then a minus sign followed by "base expenses". Underneath that he writes an equals sign and "−$300" in red pen.]

Narrator: Remember that budgeting is a plan for your money—a plan that will help empower you to maintain financial stability and control.

[The scene changes to a notebook on the left side of the screen and a pile of envelopes on the right. The notebook is open to a page entitled "last month's budget". Underneath is the phrase "total monthly income" with the minus sign below and then the words "monthly expenses". Underneath "monthly expenses" the following items are listed: "housing", "food", "payments to LIT/estate", "transportation", "emergency savings" and "auto savings". One of the envelopes on the right is labelled "January expenses" and another is labelled "emergency savings".]

Narrator: Emilie and Steve made deliberate choices about how to budget their variable and irregular incomes and so they were able to cover their January expenses from their savings.

[The items under "monthly expenses" are checked off while money flies from the "emergency savings" envelope to the "January expenses" envelope. The scene goes back to Emilie and Steve in their home office, celebrating.]

[The scene changes to Emilie and Steve sitting in an office setting with their BIA Insolvency Counsellor.]

Narrator: If relevant to you, consider discussing approaches to manage variable or irregular income with your BIA Insolvency Counsellor during your in-person counselling session.

When estimating your income, you should plan your budget based on your standard hours and/or regular pay. For example, if your overtime hours change from week to week, do not include overtime hours when estimating your income. Be careful when estimating your income if it's variable, such as working a job which includes tips and commissions. You should only include income you are confident you will receive since overestimating your income can easily lead to overspending and future financial problems.

 

If your employer pays you by cheque, you should be aware of all associated holds and banking fees. If you go to your employer’s banking branch, you may be able to cash your paycheque right away if you need immediate access to the funds. This might help you to avoid having to borrow money, such as using payday loans.

 

Using the information you learned about income, enter the amount and frequency of money you expect to receive in the budgeting template.

Budgeting template: income

An image of the the budgeting template
Description

Within the far left column titled “INCOME (After Taxes & Deductions)”, the word “Other” is written in the second cell from the bottom. Slightly to the right of the word “Other” there is a space for the user to specify the name of any “Other” type of that the user receives.

The two columns titled “Amount” and “Frequency Received” are meant to be completed by the user. The cells in the “Amount” column do not contain any text and are shaded in light blue. The user is meant to put a dollar amount within the “Amount” column next to any type of income which applies to the user. The bottom cell within the “Amount” column is blank. In the “Frequency Received” column, within the cells that say “Please Select” there is a small grey drop-down button to the right of the words “Please Select”. These cells are meant to be selected by the user depending on how often the user receives the amount of income. The bottom cell within the “Frequency Received” column is blank. The cells within the “Monthly Equivalent” column contain the character “$0” and this number is automatically calculated for the user based on the information that was entered within the “Amount” and “Frequency Received” columns. The bottom cell within the “Monthly Equivalent” column is equal to the user’s total monthly amount of income after taxes and deductions.

Income (After Taxes & Deductions) Amount Frequency Received Monthly Equivalent
Employment income blank Please select $0
Spousal support, child support blank Please select $0
Retirement income blank Please select $0
Social assistance blank Please select $0
Other blank Please select $0
Total income (after taxes and deductions) blank blank $0
 
image of debtor with counsellor

If you are unsure whether something should be included as income, write down your questions and bring them to your in-person counselling session.

 

 

 
 

Estimating your expenses

We just covered estimating your income. Now we will go over how to estimate your expenses.

Expenses are how much money you pay.

Some expenses are pretty easy to estimate because they are the same or close to the same amount and happen on a regular basis (each month).

Other expenses, called periodic expenses, can be more difficult to estimate because they happen less often. Make sure that you have enough money set aside to cover the cost of these expenses when they come up.

When you are estimating your expenses, keep in mind that periodic expenses can come up without notice. Unforeseeable expenses can be more difficult to estimate, so prepare for these by planning for them in your budget.

Try to identify and estimate all of your periodic expenses.

If you are not sure what amount to estimate, take a look at your previous year’s bank statements to see how much you spent.

 

During the insolvency process, you will no longer be making payments on the debt you had when you filed. However, you may have agreed to make regular payments to your LIT or proposal administrator. Please remember to include these amounts in your budgeting template.

Using the information you learned about expenses, calculate the amount and frequency of money you expect to pay in each category and enter it in the budgeting template.

Budgeting template: expenses

An image of the budgeting template
Description

The diagram is a screenshot of the top section of the “Expense” table within the Budgeting Template.

The two columns titled “Amount” and “Frequency Paid” are meant to be completed by the user. The cells in the “Amount” column do not contain any text and are shaded in light blue. The user is meant to put a dollar amount within the “Amount” column next to any expense which applies to the user. In the “Frequency Paid” column, within the cells that say “Please Select” there is a small grey drop-down button to the right of the words “Please Select”. These cells are meant to be selected by the user depending on how often the user pays for the expense. The cells within the “Monthly Equivalent” column contain the character “$0” and this number is automatically calculated for the user based on the information that was entered within the “Amount” and “Frequency Paid” columns. The “Periodic Expense? (consider setting aside money every month for periodic expenses)” column will auto populate based on the information entered by the user within the “Frequency Paid” column.

Expenses Amount Frequency paid Monthly equivalent Periodic expense? (consider setting aside money every month for periodic expenses)
Housing
Rent, mortgage blank Please select $0 blank
Property taxes, condo fees blank Please select $0 blank
House, tenant insurance blank Please select $0 blank
Repairs, maintenance, furniture blank Please select $0 blank
Utilities (electricity, gas, oil, propane and water) blank Please select $0 blank
 
image of debtor with counsellor

If you have additional expenses which are not listed on the budgeting template, feel free to discuss these expenses openly in a judgement free atmosphere with your counsellor.

 

Estimating your savings

In addition to income and expenses, the budgeting template also has a section for savings.

Saving is essential because it creates financial stability and security! Many think saving is only for large items such as retirement or a down payment on a house. However, it's not – saving is also a way to avoid periodic expenses surprising you.

So saving is necessary to ensure that funds are available for:

  • periodic expenses, including unforeseeable ones;
  • other unpredictable events; and,
  • achieving a financial goal.

 

The solution to managing your periodic expenses (such as property taxes) is to estimate them and then save money each paycheque so that you are prepared for the payment. The budgeting template will help you to remember to save monthly for these infrequent expenses by showing you how much you should set aside each month so that you have the funds available when these periodic expenses need to be paid.

Your emergency fund is used to set aside money in case of an unforeseeable event, like loss of income. Many individuals who file for bankruptcy say it is because they experience a loss of income. It's important to have an emergency fund for unexpected situations such as this.

Your savings for financial goals is the money set aside for your future goals such as retirement or education. This is discussed in more detail in the setting and achieving financial goals module.

You may not have much, if any, money to allocate to your savings at this point. That’s ok! Instead, plan your budget around your essential living needs. Your goal is to learn to live within your means on a month-to-month basis.

 
 

It is a good idea to set up a bank account specifically for your savings. This will allow you to keep your savings separate from the money you use for everyday expenses. As an added benefit, setting up a bank account can help you establish a banking relationship. Banks will generally relax their hold requirements once a customer has a proven relationship.

Transcription — Managing Periodic Expenses

[Emilie walks into her home office and waves.]

Narrator: This is Emilie.

[Emilie sits down at her desk to think about her expenses.]

Narrator: Some of Emilie's expenses don't occur every month. These are called periodic expenses. Each month when Emilie is making her budget, she spends time thinking about possible periodic expenses.

[The scene changes to a dark blue background with the white title "Emilie's periodic expenses". The space is split into quarters by a pair of crossed lines.]

Narrator: Emilie is considering her periodic expenses, which occur infrequently. These expenses include Emilie's property taxes, license plate renewal, gifts, and school supplies.

[The quarters of the screen fill with images of the expenses mentioned.]

Narrator: Emilie makes sure to estimate her periodic expenses in her budget because they happen less often and can come up without notice.

[The scene changes back to Emilie in her home office, writing at the desk. Steve walks in from the right side of the screen to talk to Emilie.]

Narrator: Steve reminds Emilie that not all periodic expenses are apparent. Emilie considers this and makes an estimate in her budget for unforeseeable periodic expenses. These expenses may include unfortunate events which are very difficult to predict, such as a car accident or a medical emergency.

[Emilie is seen to be thinking about the unfortunate events mentioned.]

[The scene changes and Emilie is standing to the left of the screen, holding her wallet. To the right of the screen are a series of six labelled envelopes arranged in two columns and three rows. The envelopes are labelled: emergency savings, periodic expense savings, food, housing, payments to LIT/estate and transportation.]

Narrator: Emilie makes sure to put some money aside each pay cheque for her periodic expenses, including a small amount for unforeseeable periodic expenses or emergencies.

[Money is seen flying from Emilie's wallet into the two savings envelopes.]

[The scene changes to a city street. Emilie drives in from the right side of the screen.]

Narrator: One morning Emilie was on her way to work when her car broke down.

[The hood of Emilie's car starts to smoke. She stops and gets out of her car to take a look.]

Narrator: This is an unforeseeable event which will cost Emilie money that she cannot afford to pay with her regular monthly pay cheque.

[The scene changes to Emilie, running on foot as fast as she can to get to work on time. She is stressed.]

Narrator: Emilie requires a vehicle to get to work.

[The scene changes to a wall-mounted clock, with arms spinning. The wall clock fades and is replaced by images of a bus, a train and a bicycle. All three modes of transportation are then crossed out in red.]

Narrator: She commutes one hour to and from work every day and she does not have access to public transit and cannot cycle or walk.

[The scene changes to Emilie standing in the driveway of her home, thinking about how difficult it will be to get to work without a car and about how expensive the car repair is going to be.]

Narrator: If Emilie is unable to pay for her car repairs, then she will have a very difficult time getting to and from work.

[The scene changes to Emilie standing to the right of the screen while visual representations of different types of loans appear on the left. First a line of credit loan at $5.81, then a slightly more expensive overdraft protection loan at $7.19, then a slightly more expensive cash advance at $7.74, and finally, a much more expensive payday loan at $63.00.]

Narrator: If Emilie didn't have an emergency fund, her only option for paying the repair might be an expensive payday loan which risks putting Emilie into a debt cycle.

[The scene changes to Emilie, trapped in a spinning circle while reaching for money that is always just out of her reach.]

[The scene changes to Emilie standing in the driveway of her home again, thinking about how she has a buffer to help her get through this difficult time. An image of her emergency savings envelope appears on the screen.]

Narrator: Luckily Emilie has been putting money into an emergency fund for unforeseeable periodic expenses.

[The scene changes to Emilie walking to the auto shop to pick up her car. She gets in her car and drives away smiling. She can then be seen driving to work.]

Narrator: Emilie can use the money she has saved up in her emergency fund. She will not have to worry about her commute to and from work because she will be able to pay for the car repairs needed using her emergency savings. Consider using the emergency fund strategy!

[The scene changes to Emilie and Steve sitting in an office setting with their BIA Insolvency Counsellor.]

Narrator: At your in-person counselling session, discuss how to make an emergency fund and how to budget for periodic expenses with you BIA Insolvency Counsellor.

Using the information you learned about savings, calculate the amount and frequency of money you expect to save in each category and enter it in the budgeting template.

Budgeting template: savings

An image of the budgeting template
Description

The two columns titled “Amount” and “Frequency of Deposits” are meant to be completed by the user. The cells in the “Amount” column do not contain any text and are shaded in light blue. The user is meant to put a dollar amount within the “Amount” column next to any savings which applies to the user. The bottom cell within the “Amount” column is blank. In the “Frequency of Deposits” column, within the cells that say “Please Select” there is a small grey drop-down button to the right of the words “Please Select”. These cells are meant to be selected by the user depending on how often the user deposits the amount to their savings. The bottom cell within the “Frequency of Deposits” column is blank. The cells within the “Monthly Equivalent” column contain the character “$0” and this number is automatically calculated for the user based on the information that was entered within the “Amount” and “Frequency of Deposits” columns. The bottom cell within the “Monthly Equivalent” column is equal to the user’s total monthly amount of savings.

Savings Amount Frequency of deposits Monthly equivalent
Emergency fund blank Please select $0
Financial goals blank Please select $0
Total savings blank Please select $0
 
image of debtor with counsellor

If you have additional savings which are not listed on the budgeting template, feel free to discuss these with your counsellor.

 

Consider taking a 5-10 minute study break at this point!

image of an hourglass

Step 2: create

The budgeting cycle: step 2

An image of the budgeting cycle
Description

The diagram shows a blonde woman with a pink shirt looking thoughtfully at the budgeting cycle.

The diagram has a light blue background. The bottom of the diagram has a green strip which resembles grass. In the centre of the image is a large circle which represents the budgeting cycle. On either side of the circle there is an image of the blonde girl. On the left-hand side of the circle the blonde girls is sitting on a brown wooden bench with a laptop on her lap. There is an image of a lightbulb above and to the right of her head, she is smiling and pointing her finger in the air while looking up at the lightbulb. On the right-hand side of the circle the blonde girl is standing looking at the budgeting cycle. She has one hand on her hip and one hand on her chin to show that she is thinking about the budgeting cycle.

In the center of the diagram there is a dark blue circle outlined in white. The words “Budgeting cycle” are written in white in the middle of the dark blue circle.Attached to the outside edge of the dark blue circle outlined in white, there are four evenly divided sections to represent the four steps in the budgeting cycle. Each of these four main sections curves around the outside edge of the dark blue circle. These four sections are each in the shape of an arrow to illustrate the direction of the budgeting cycle. The four arrows join together to form a circular shape.

The curved arrow in the top left corner of the large circle is very light grey and is outlined in white. Within this very light grey arrow it says “Step 1: Prepare” written in white. To the right of this writing there is an image of a clipboard with a checkmark. Underneath the words and the image, it says “Beginning of the month” in small black letters. The very light grey arrow is pointing to the right where the very light grey arrow joins with a curved green arrow. This is the only section around the circle that is shaded in a bright colour to represent that this is the current step within the budgeting cycle. The green arrow is outlined in white and is at the top right of the large circle. Within the green arrow it says “Step 2: Create” written in white. To the right of this writing there is an image of list written on a piece of paper with a pencil next to the piece of paper. Underneath the words and the image, it says “Beginning of the month” in small black letters. The green arrow is pointing downwards where the green arrow joins with a curved dark grey arrow. The dark grey arrow is outlined in white and is at the bottom right of the large circle. Within the dark grey arrow it says “Step 3: Implement” written in white. To the left of this writing there is an image of a list written on a piece of paper with three gears linked together next to the piece of paper.

Underneath the words and the image, it says “Throughout the month” in small black letters. The dark grey arrow is pointing the left where the dark grey arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the bottom left of the large circle. Within the light grey arrow it says “Step 4: Review” written in white. To the left of this writing there is an image of a list written on a piece of paper with a magnifying glass next to the piece of paper. Underneath the words and the image, it says “End of the month” in small black letters. The light grey arrow is pointing upward where the light grey arrow joins with the original very light grey arrow from the beginning and the cycle continues.

 

After entering your estimated income, expenses and savings you now have all of the tools you need to create a balanced budget. This is the focus of step 2 — create.

The goal of a budget is to make sure that all of your income is equal to your expenses and savings. This is a balanced budget.

The following sections cover different strategies that you can use if your budget is not balanced. These strategies can help you deal with a surplus or deficit.

Create a balanced and realistic budget

Since the goal of a budget is to balance your expected income with your expenses and savings, the following sections talk about strategies for adjusting your income, expenses, and savings.

Strategies to solve a budget deficit

1. Review your expenses and savings

Consider the difference between needs and wants.

A need is a necessity, something that is essential for living. Examples include shelter, groceries and basic clothing.

A want is a desire, something that is non-essential for living but that you would like to have. Examples include vacations, restaurants meals and non-basic clothing.

It is important to understand each expense and saving line in your budget as either a need or a want. This will help you to adjust your expenses or savings if you have a budget deficit.

A budget deficit occurs when your expenses and savings are greater than your income.

 
Transcription — Needs and Wants

[Emilie and Steve are in their backyard, having a barbecue.]

Narrator: This is Emilie and Steve.

[Emilie sits down at the patio table and starts to dream about a new bike.]

Narrator: Emilie is interested in buying a new bike to replace her current model.

[Steve moves away from the barbecue to talk to Emilie.]

Narrator: Steve explains to Emilie that she should consider whether this purchase is a need or a want before buying a new bike.

[Emilie begins to think about different options.]

Narrator: Emilie considers the idea of purchasing a new bike. She realizes that she could probably get her current bike fixed for a lower cost than the cost of buying a new bike. She also acknowledges that she doesn't use her current bike very often, as she only uses it for leisure during the months of May to September.

[The scene changes to an image of the new bike with a price tag of three dollar signs attached. The price tag is replaced by a tag labelled "want".]

Narrator: After reflecting on the idea of buying a new bike, Emilie decides that the purchase of a new bike is a want for her, as she does not need a new bike.

[The bike and the tag are crossed out.]

[The scene changes to the word "want" floating in the middle of the screen, surrounded by sparkling stars.]

Narrator: A want is a desire. This is something that you wish for, or a non-essential item.

[The word "want" disappears and three bubbles appear one at a time on the screen. The first bubble contains an image of Emilie and Steve at the beach, the second bubble shows Emilie and Steve having a fancy meal out and the third bubble shows Emilie shopping in a boutique.]

Narrator: Examples include a vacation, restaurant meals, and non-basic clothing.

[The scene changes to three small, stylized images in the centre of the screen: a house, a knife and fork, and an image of a tap dispensing water into a cup. The title "need" hovers at the top of the screen.]

Narrator: A need is a necessity. This is something that is required or essential for living.

[The word "need" disappears and three bubbles appear one at a time on the screen. The first bubble contains an image of a bus, the second bubble shows a full grocery bag and the third bubble shows clothing on a rack.]

Narrator: Examples include transportation to get to work, groceries, and basic clothing.

[The scene changes to Emilie, looking at a notebook. The notebook appears in the background, open towards the screen. The first page is titled "monthly budget" and the following items are listed below it: housing, food, payments to LIT/estate, transportation, entertainment and emergency savings. On the second page of the notebook is a note that reads: "need or want?" Emilie crosses out the item "entertainment".]

Narrator: Emilie decides to review the rest of her expenses in her budget to determine if each expense is a need or a want.

[The scene changes to a view of Emilie's desk and her notebook open on it. There is a cup of coffee at the top right of the screen and below it are some receipts and an envelope that Emilie is labelling "entertainment". The notebook is open to the "monthly budget" page seen in the previous scene. The word "entertainment" remains crossed out. Money flies from the "entertainment" envelope to the "emergency savings" envelope.]

Narrator: Determining her needs and wants will help her to reduce or reallocate her expenses if necessary.

[The scene changes to a view of Emilie's home office. She is sitting at the desk looking happy.]

Narrator: Emilie now understands that reviewing her expenses is a critical step to understanding her budget.Â

[The scene changes to a balance scale. One side of the scales is labelled "want", and the other is labelled "need".]

Narrator: It is important to realize that one individual's wants may be another person's needs.

[The scene changes and is now a busy city street with people waiting at a bus stop. The frame then changes to the inside of a city bus where Steve is sitting along with other passengers.]

Narrator: For example, a car might be a want for someone like Steve, who can get to work using public transportation.

[The scene changes to Emilie driving to work.]

Narrator: Or a need, for someone like Emilie, who doesn't work near any public transportation.

[The scene changes to a white background with the words "need" and "want" floating beside each other. Arrows appear to indicate the words can switch places.]

Narrator: It's also very important to notice that an individual's wants and needs can change over time.

[The scene changes to Emilie and Steve's house. They are in their living room where Emilie is sitting with their baby and Steve is on the floor, playing with their daughter.]

Narrator: For example, a three bedroom home may be a need for Emilie and Steve while they raise their family.

[The scene cuts to an apartment building where an older Emily is cooking in the kitchen and an older Steve is reading in the living room.]

Narrator: However, a one-bedroom apartment may be better suited to what they need when their children are all grown up and living on their own.

[The scene changes to Emilie and Steve sitting in an office setting with their BIA Insolvency Counsellor.]

Narrator: Think about the things in your life which might not be clear as to whether they are a need or a want. Write these down and bring this list to your next in-person counselling session and discuss your needs and wants with your BIA Insolvency Counsellor.

Needs and wants can change over time and one individual’s wants may be another person’s needs. For example: for an individual who lives near a bus route, a car may be a want. However, for another individual who doesn't have access to public transit and can't cycle to work, a car may be a need.

image of debtor with counsellor

Think about the things in your life which might not be clear as to whether they are a need or a want. Write these down and bring this list to your in-person counselling session to discuss with your counsellor.

 

When reviewing your anticipated expenses and savings, ask yourself:

  • Do the numbers accurately reflect your spending habits? (you will learn more about your spending habits in the spending habits module).
  • Could there be a more realistic number to reflect your expenses or savings?
  • Are there any small recurring expenses that you can cut?
  • Are there expenses or savings in the ‘want’ categories that you can cut?

 

2. Expand your income

Another potential strategy to solve a budget deficit is to increase your income. Below are some ideas on how to increase your income so that you can successfully balance your budget.

Be aware of pyramid schemes and/or employment where you have to pay an upfront fee. These types of jobs can end up costing you a lot of money.

Additional employment:

  • apply for a higher-paying job or consider working multiple jobs such as a part-time job,
  • work odd jobs (i.e. mowing lawns, shovelling driveways, cleaning homes, walking dogs, etc.),
  • take on freelance work, or
  • work over-time hours.

 

Workplace and government plans:

  • see if you are eligible for Employment Insurance benefits,
  • see if you can draw on vacation pay that you have accumulated, and
  • see if you are eligible for income assistance programs by contacting your provincial or territorial government ministry responsible for social assistance programs.

 

Shelter:

  • If you own,consider selling your home or other property, then buying or renting another home for less
  • consider renting out part of your home to bring in extra money, or
  • If you rent, consider renting another home for less.

 

image of debtor with counsellor

Some of the options listed above might not be best suited to your specific situation so it's important to discuss some options with your counsellor.

 

What to do with a budget surplus

If you have a budget surplus, here are some ideas on what to do with your extra money:

  • Pay down debts. If you are a bankrupt, continue to pay down debts that will not be discharged, such as certain student loans.
  • Boost your emergency fund.
  • Invest some of the surplus to pay for financial goals like your children's education or your retirement.

 

It is important to recognize that there is a difference between a budget surplus and surplus income.

A budget surplus is when your income exceeds your expenses, therefore indicating that you have money left over to put into saving for your periodic expenses or other financial objectives.

Surplus income is extra money that you have to pay to your estate. Some people who are bankrupt are expected to contribute a reasonable amount from their income to their estate while in bankruptcy.

image of debtor with counsellor

If you have additional questions about surplus income, write them down and bring them to your in-person counselling session.

 

Adjusting the budgeting template

      

Using the information you learned about creating a balanced budget, make adjustments to your income, expense and saving estimates in order to balance your budget. The 'balancing your budget' table (see below) in the budgeting template will indicate when you have a surplus, a deficit and when your budget is balanced.

Budgeting template: balancing your budget

An image of the budgeting template
Description

Within the cell that says ‘every month’, there is a small grey drop-down button to the right of the words ‘every month’. This cell is meant to be selected by the user.

Within the four cells that contains ‘$0’, this amount is automatically calculated for the user based on the information that user enters within their budgeting template.

Within the cell that says ‘Congratulations! Your budget is balanced within 5%!’ this wording will change based on the user’s information, as this statement is dependent on the numbers that the user enters into their budgeting template.

Balancing your budget

Make adjustments to your income, savings, and expenses so that your budget is balanced

Period (click to change): Every month Congratulations! Your budget is balanced within 5%!
Total income $0
Total savings $0
Total expenses (including money you need to save to pay for expenses that do not occur monthly) $0
Difference $0
 

Congratulations!  Your estimated budget will provide you with financial guidance for the upcoming month.

image of debtor with counsellor

Ensure your counsellor has a copy of your balanced budget for discussion at your in-person counselling session.

Step 3: implement

The budgeting cycle: step 3

An image of the budgeting cycle
Description

The diagram shows a blonde woman with a pink shirt looking thoughtfully at the budgeting cycle.

In the center of the diagram there is a dark blue circle outlined in white. The words “Budgeting cycle” are written in white in the middle of the dark blue circle.Attached to the outside edge of the dark blue circle outlined in white, there are four evenly divided sections to represent the four steps in the budgeting cycle. Each of these four main sections curves around the outside edge of the dark blue circle. These four sections are each in the shape of an arrow to illustrate the direction of the budgeting cycle. The four arrows join together to form a circular shape.

The curved arrow in the top left corner of the large circle is very light grey and is outlined in white. Within this very light grey arrow it says “Step 1: Prepare” written in white. To the right of this writing there is an image of a clipboard with a checkmark. Underneath the words and the image, it says “Beginning of the month” in small black letters. The very light grey arrow is pointing to the right where the very light grey arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the top right of the large circle. Within the light grey arrow it says “Step 2: Create” written in white. To the right of this writing there is an image of list written on a piece of paper with a pencil next to the piece of paper. Underneath the words and the image, it says “Beginning of the month” in small black letters. The light grey arrow is pointing downwards where the light grey arrow joins with a curved purple arrow. This is the only section around the circle that is shaded in a bright colour to represent that this is the current step within the budgeting cycle. The purple arrow is outlined in white and is at the bottom right of the large circle. Within the purple arrow it says “Step 3: Implement” written in white. To the left of this writing there is an image of a list written on a piece of paper with three gears linked together next to the piece of paper. Underneath the words and the image, it says “Throughout the month” in small black letters. The purple arrow is pointing the left where the purple arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the bottom left of the large circle. Within the light grey arrow it says “Step 4: Review” written in white. To the left of this writing there is an image of a list written on a piece of paper with a magnifying glass next to the piece of paper. Underneath the words and the image, it says “End of the month” in small black letters. The light grey arrow is pointing upward where the light grey arrow joins with the original very light grey arrow from the beginning and the cycle continues.

 

Apply your budget

In Step 1: prepare and step 2: create you created a balanced budget. Step 3: implement is about putting things in place to help you succeed in the real world so you don't run out of money when your expenses are due.  This involves keeping track of your actual income, expenses, and deposits to savings.

Record keeping is a great way to keep track of your money.

Set aside time each week (15 minutes or so) to do this – this is more manageable than doing it once a month. 

There are many benefits to keeping a record of the income you actually receive, the expenses you actually pay and the money you deposit to savings.

You have created a budget based on deliberate decisions about how you want to spend your money.  Recording your income and expenses as you receive and pay them, will help you to control your spending and make sure that you are living within your means by only spending what you have planned and budgeted.

Income and expense
tracking tool

Keeping accurate and up-to-date records will also help you estimate future income and expenses more accurately.

Please download the income and expense tracking tool to help you keep track of your money.  Write down all of your income, expenses, and deposits to savings throughout the month. The income and expense tracking tool is complementary to the budgeting template.

There are many different ways to track your spending and everyone is different. This income and expense tracking tool is just one of many available options. If you decide that our tool does not suit your needs, don't give up or get discouraged, but instead use this activity as a learning experience. Once this process is over, you can look for an alternative method that works better for you. Look for a different tracking method better suited to your needs. Discuss different options with your counsellor.

If you are bankrupt, your LIT must be informed of any major changes to your income or expenses. Maintaining the income and expense tracking tool helps you document your income and any changes in your situation.

image of debtor with counsellor

Bring your income and expense tracking tool to your in-person counselling session to discuss and review with your counsellor.

Record keeping

Here are some record-keeping suggestions that can help you complete your income and expense tracking tool:

  • keep all of your receipts,
  • record expenses as you spend – this can be done via:
    • notebook or calendar
    • computer program or mobile application
      • the use of your bank’s expense categorization software built into online banking, and/or downloading information from your online banking account into a spreadsheet

 

Tracking your expenses regularly allows you to reduce your spending within the month in order to stay within your budget. Doing this on a weekly basis is less overwhelming than doing it at the end of the month.

IMPORTANT! There are risks associated to disclosing your online banking and credit card information to third-party financial mobile applications and/or online services. Make sure you review the user agreement and your banking agreement carefully to determine whether sharing your information with another party will result in losing your protection against unauthorized transactions. When in doubt, don't share your banking credentials. If you are at risk, contact your bank immediately and change your online banking passwords.

The envelope system

Transcription — The Envelope System

[Steve is sitting at a desk in his home office, reviewing some paperwork.]

Narrator: This is Steve.

[The scene changes to an image of the budgeting cycle. It is a multi-coloured wheel that contains four sections, entitled: "step 1-prepare", "step 2-create", "step 3-implement" and "step 4-review".]

Narrator: Steve is currently working on the budgeting cycle.

[The screen zooms in on the budgeting cycle, focussing on "step 1-prepare" and "step 2-create". The screen then zooms back out to show the entire budgeting cycle.]

Narrator: Before the beginning of the month, he has prepared and created his budget. These are the first two steps of the budgeting cycle.

[The screen zooms in on the budgeting cycle again, focussing on "step 3-implement".]

Narrator: Now Steve can focus on implementing his budget, which is about putting practices in place without running out of money before the end of the month.

[The scene changes and the words "envelope system" slide across the screen along with the image of an envelope opening up to reveal money inside.]

Narrator: The envelope system is a great way to implement your budget, stick to it, and keep track of monthly spending.

[The scene changes to Steve thinking about how difficult it is to keep track of his variable expenses.]

Narrator: Steve decides to use the envelope system to make his budget because he has a hard time keeping track of his variable expenses.

[The scene changes to a dark blue background that is split in half horizontally. The top half shows the word "savings" on the right, accompanied by an image of money to its left, and the bottom half shows the word "expenses" on the right, accompanied by the image of an envelope to its left.]

Narrator: He can divide his income into the envelopes and separate his savings and expenses into different categories.

[Six labelled envelopes appear on the screen and replace the images on the left. Two envelopes appear next to the word "savings" and are labelled "emergency savings" and "auto savings". Four envelopes appear next to the word "expenses" and are labelled: "food", "housing", "payments to LIT/estate" and "transportation".]

Narrator: Steve makes an envelope for each budget category.

[The six envelopes shift over to the right side of the screen and money is shown being distributed into each of the labelled envelopes.]

Narrator: He can now allocate his income into the appropriate envelope when he receives it.

[Steve appears on the left of the screen and receipts are shown being distributed into each of the labelled envelopes.]

Narrator: As Steve spends money, he uses cash from the appropriate envelope and he puts the receipt for that purchase into the same envelope.

[The scene changes to a bright yellow background. There is a pile of money, receipts and envelopes in the centre of the screen. An image of a magnifying glass slides onto the screen from the bottom left corner.]

Narrator: Benefits of the envelope system are the ability to easily monitor how much money has been spent because the receipts are in the envelope and how much money is left.

[The scene changes to three calculators, side by side. The first calculator shows a "$0" amount and is labelled "on budget". The second calculator shows a "$-48" amount and is labelled "over budget". The last calculator shows a "$32" surplus and is labelled "under budget".]

Narrator: Steve can see whether he is on, over, or under his budget by looking inside the envelopes.

[The scene changes to two envelopes side by side. The one on the left is labelled "food" and the one on the right is labelled "housing". Money is shown moving from the "food" envelope to the "housing" envelope. A large red "X" appears on the image.]

Narrator: Try to avoid borrowing money from another envelope.

[The scene changes and shows Steve thinking about not having enough money for groceries.]

Narrator: Think of the consequences.

[The scene changes and now shows Steve working on his laptop.]

Narrator: Steve can also opt to use virtual envelopes.

[Icons depicting a mobile phone, a laptop, and a tablet appear on the left side of the screen.]

Narrator: Many applications, websites, and online banking tools offer virtual envelope services for free.

[Steve disappears and the screen is split between the icons of the mobile phone, laptop and tablet, and the six labelled envelopes.]

Narrator: Another great strategy for Steve is to use both virtual and physical envelopes.

[The scene returns to Steve at home in his office.]

Narrator: Consider using the envelope system and choose whichever method works best for you!

[The scene changes to Steve sitting in an office setting with his BIA Insolvency Counsellor.]

Narrator: At your in-person counselling session discuss the envelope system with your BIA Insolvency Counsellor.

In Step 1: prepare and step 2: create, you allocated all your income to expenses. The envelope system is a great way to see if your estimates were right. By separating your expenses into categories, you can see how much you have spent and how much you have left in each area.

Ideally, you would have an envelope for each expense category. Put the budgeted amount for each category into the appropriate envelope to spend as required. To find out if you are on, over, or under budget, simply just look inside the envelope. Resist the temptation of borrowing from another envelope.

You may use a physical and/or virtual envelope:

  • Physical envelope: for each expense category, write the name and budgeted amount on an envelope and put the cash amount inside. Keep the envelopes in a safe place.
  • Virtual envelope: many applications and websites offer virtual envelope systems for free. This allows you to use your debit card to pay for your day-to-day expenses and have a savings account for your periodic expenses. This system does not require you to take out cash and have cash on hand at all times.
  • Both physical and virtual envelopes: some people use both physical envelopes and virtual envelopes. This allows you to pay for regular expenses in cash, while also paying for other expenses with your debit card. You can keep money in a savings account for periodic expenses. 
image of debtor with counsellor

Take the opportunity at your in-person session to speak with your counsellor about how you can set-up the envelope system.

Automatic payments

Now that you have a list of all of your expenses, think about where it makes sense to set up automatic monthly payments. The automatic payments would be meant to cover your fixed expenses, such as rent/mortgage, car loan payments, and utilities. You may want to arrange to have your bills automatically deducted when you know you’ll have the funds available.

Automatic payments can be very useful for some people; however, this method might not be the best option for everyone. Talk to your counsellor about whether automatic payments are the right option for you.

Step 4: review

The budgeting cycle: step 4

An image of the budgeting cycle
Description

The diagram shows a blonde woman with a pink shirt looking thoughtfully at the budgeting cycle.

The diagram has a light blue background. The bottom of the diagram has a green strip which resembles grass. In the centre of the image is a large circle which represents the budgeting cycle. On either side of the circle there is an image of the blonde girl. On the left-hand side of the circle the blonde girls is sitting on a brown wooden bench with a laptop on her lap. There is an image of a lightbulb above and to the right of her head, she is smiling and pointing her finger in the air while looking up at the lightbulb. On the right-hand side of the circle the blonde girl is standing looking at the budgeting cycle. She has one hand on her hip and one hand on her chin to show that she is thinking about the budgeting cycle.

In the center of the diagram there is a dark blue circle outlined in white. The words “Budgeting cycle” are written in white in the middle of the dark blue circle.Attached to the outside edge of the dark blue circle outlined in white, there are four evenly divided sections to represent the four steps in the budgeting cycle. Each of these four main sections curves around the outside edge of the dark blue circle. These four sections are each in the shape of an arrow to illustrate the direction of the budgeting cycle. The four arrows join together to form a circular shape.

The curved arrow in the top left corner of the large circle is very light grey and is outlined in white. Within this very light grey arrow it says “Step 1: Prepare” written in white. To the right of this writing there is an image of a clipboard with a checkmark. Underneath the words and the image, it says “Beginning of the month” in small black letters. The very light grey arrow is pointing to the right where the very light grey arrow joins with a curved light grey arrow. The light grey arrow is outlined in white and is at the top right of the large circle. Within the light grey arrow it says “Step 2: Create” written in white. To the right of this writing there is an image of list written on a piece of paper with a pencil next to the piece of paper. Underneath the words and the image, it says “Beginning of the month” in small black letters. The light grey arrow is pointing downwards where the light grey arrow joins with a curved dark grey arrow. The dark grey arrow is outlined in white and is at the bottom right of the large circle. Within the dark grey arrow it says “Step 3: Implement” written in white. To the left of this writing there is an image of a list written on a piece of paper with three gears linked together next to the piece of paper. Underneath the words and the image, it says “Throughout the month” in small black letters. The dark grey arrow is pointing the left where the dark grey arrow joins with a curved orange arrow. This is the only section around the circle that is shaded in a bright colour to represent that this is the current step within the budgeting cycle. The orange arrow is outlined in white and is at the bottom left of the large circle. Within the orange arrow it says “Step 4: Review” written in white. To the left of this writing there is an image of a list written on a piece of paper with a magnifying glass next to the piece of paper. Underneath the words and the image, it says “End of the month” in small black letters. The orange arrow is pointing upward where the orange arrow joins with the original very light grey arrow from the beginning and the cycle continues.

 

Review and adjust your budget

Step 4: review is about critically analyzing your budget; determining whether your budget is realistic and then making adjustments to your plan.

Compare your budgeting template to your income and expense tracking tool during the month and consider whether you need to adjust your spending in a particular category or adjust your budget for the next budgeting period.

Budgeting template: review

An image of the budgeting template
Description

The diagram is a screenshot of the top section of the Budgeting Template.

In the top left corner of the diagram the words “View Instructions” are written in bold black letters. At the top right corner of the screenshot there are two equal sized grey rectangles that are aligned on the page. The word “Save” is written within the first grey rectangle, and the word “Print” is written within the second grey rectangle. In the top center of the diagram, the words “Budgeting Template” are written in bold black letters.

Within the far left column titled “INCOME (After Taxes & Deductions)”, the word “Other” is written in the second cell from the bottom. Slightly to the right of the word “Other” there is a space for the user to specify the name of any “Other” type of that the user receives.

The two columns titled “Amount” and “Frequency Received” are meant to be completed by the user. The cells in the “Amount” column do not contain any text and are shaded in light blue. The user is meant to put a dollar amount within the “Amount” column next to any type of income which applies to the user. The bottom cell within the “Amount” column is blank. In the “Frequency Received” column, within the cells that say “Please Select” there is a small grey drop-down button to the right of the words “Please Select”. These cells are meant to be selected by the user depending on how often the user receives the amount of income. The bottom cell within the “Frequency Received” column is blank. The cells within the “Monthly Equivalent” column contain the character “$0” and this number is automatically calculated for the user based on the information that was entered within the “Amount” and “Frequency Received” columns. The bottom cell within the “Monthly Equivalent” column is equal to the user’s total monthly amount of income after taxes and deductions.

Income (after taxes and deductions) Amount Frequency received Monthly equivalent
Employment income blank Please select $0
Spousal support, child support blank Please select $0
Retirement income blank Please select $0
Social assistance blank Please select $0
Other blank Please select $0
Total income (after taxes and deductions) blank blank $0
 

Income and expense tracking tool: review

An image of the income and expense tracking tool
Description

The diagram is a screenshot of the top section of the Income and Expense Tracking Tool.

In the top left corner of the diagram the words “View Instructions” are written in bold blue letters. At the top right corner of the screenshot there are two equal sized grey rectangles that are aligned on the page. The word “Save” is written within the first grey rectangle, and the word “Print” is written within the second grey rectangle. In the top center of the diagram, the words “Income and Expense Tracking Tool” are written in bold black letters.

Directly below the words “Income and Expense Tracking Tool”, the word "Month" is written in bold black letter toward the left side of the image. There is a colon directly to the right of the word "Month" and there is a horizontal light blue rectangle directly to the right of the colon with the word "October" written inside the light blue rectangle. There is a black drop down symbol in the centre of a light grey rectangular box to the right of the word “October”. This is intended for the user to select the appropriate month. To the right of this, there is a white space and then the word "Year". The word "Year is written in bold black letters and there is a colon directly to the right of the word "Year". There is a horizontal light blue rectangle directly to the right of the colon with the year "2018" written inside the light blue rectangle. There is a black drop down symbol in the centre of a light grey rectangular box to the right of the year “2018”. This is intended for the user to select the appropriate year. On the next line down it says "Day of the week you want to enter your expenses" written in bold black letters. There is a colon directly to the right of this phrase. There is a horizontal light blue rectangle directly to the right of the colon with the word "Sunday" written inside the light blue rectangle. There is a black drop down symbol in the centre of a light grey rectangular box to the right of the word “Sunday”. This is intended for the user to select the appropriate day of the week.

Within the far left column titled “INCOME (After Taxes & Deductions)”, the word “Other” is written in the second cell from the bottom. Slightly to the right of the word “Other” there is a space for the user to specify the name of any “Other” type of that the user receives.

All of the blank cells that have a date range listed at the top of the column are meant to be filled in by the user where appropriate. Any cells that contain “$0” represent total values. These cells are automatically calculated for the user based on the information that is entered within the in the blank cells.

Income (after taxes and deductions) Mon Oct 01 to Sun Oct 07 Mon Oct 08 to Sun Oct 14 Mon Oct 15 to Sun Oct 21 Mon Oct 22 to Sun Oct 28 Mon Oct 29 to Wed Oct 31 blank Total
Employment income blank blank blank blank blank blank $0
Spousal support, child support blank blank blank blank blank blank $0
Retirement income blank blank blank blank blank blank $0
Social assistance blank blank blank blank blank blank $0
Other (provide details): blank blank blank blank blank blank $0
Total income (after taxes and deductions) $0 $0 $0 $0 $0 $0 $0