Budgeting is all about foresight, organization and restraint. Without an understanding of both how much money is coming in and how much money is going out, a budget is useless. We can track our income and expenses over several months while we refine our forecasts. I started with a spreadsheet that I downloaded from the web and customized it over several years to suit my individual needs.

Financial Forecasting

Apart from using a spreadsheet to forecast what’s coming, I also updated it over time so it became an historical record. Historical records are our greatest forecasting tool. I encourage you to design one that works for you. You’ll need to create a realistic budget to determine reasonable amounts for each budget category. So, we begin with financial forecasting and the tools we need to manage it.

Forecasting Tools

I keep 12 spreadsheets, one for each month of the year, in a single Excel workbook. Once the year is over I start with a fresh copy of the workbook for next year. Within the workbook, a spreadsheet is used to track each month of expenses and payments. I have developed this into a template that makes it very easy to prepare for the coming month. In my monthly spreadsheet, I have separate areas for each of the following:

  1. Income – The income area tracks income from all sources. It is further broken down into bi-weekly time frames, as that is how my primary source of income is paid. I pre-populate the areas for my primary income, as that is a stable, predictably income. The empty lines can be used to record unexpected or irregular income. Notice that I have two columns, one for each pay period in a given month. I have another template of this spreadsheet for months that include three pay periods, which happens twice per year.
  2. Living Expenses – In this area red font indicates an anticipated bill. Once I have paid the bill, I change the amount to how much I paid and the font color to black. The first column, starting from the left is a description of the bill. The second and third column, from the left, predict and then track any money to be paid during the pay period for that column. I have a column for each pay day in the month being tracked. The two columns on the right show the anticipated amount of the bill and the billing pattern.
  3. Totals – This areas shows your financials totals for the month. It is broken down into bi-weekly totals that are then accumulated into the monthly total, positive or negative. If I have lost money that month the font changes to red, if I turned a profit that month the font remains green.
  4. A visual display that shows me if I am under-budget or over-budget.

Below is a picture of my monthly spreadsheet. Notice the sections, as I have listed them above. Don’t worry about the section called ‘5 – Incidentals’ we will get to that later in our discussions on budgeting.

Forecasting Concepts


There is great value in keeping bills and expenses predictable. Through your life, you will encounter plenty of unexpected events that impact your financial health. So, try to keep your regular monthly transactions as predictable as possible. This is far easier than it sounds, a little due diligence goes a long way to keeping things easy.

An example of this is my hydro bill. When I moved into my townhouse, I had no idea what my energy bills would be. I know that I will consume far more energy in the winter than I will in the summer. I contacted BC Hydro, my hydro provider, to ask them what the history of the townhouse was for energy consumption. After that conversation, I subscribed to their ‘Equal Monthly Billing’ plan. This provides me the safety and security of knowing that I will not have any huge surprises this winter. Although I am paying more than I need to during the warmer months, this will keep it consistent through the winter months.


When possibly, modify payment schedules to reflect your financial picture. Many payment plans can be customized, within reason, to make payments easier and more convenient. To keep scheduling easy, I have negotiated my mortgage payment to be bi-weekly, which matches my pay schedule. I have arranged for my mortgage payment to be on the exact same day as my bi-weekly pay gets deposited. I have also authorized my bank to take the mortgage payment out of the bank account that my pay goes in to (my Operations account). That means that I never have to worry about my mortgage payment, it is automatically taken care of on payday. I don’t even have to think about it. When I signed the mortgage, I was given a three week window that I was allowed to modify the start of the payment schedule within. But, I was only told about that because I specifically asked about it, most people don’t ask. I chose my payday to keep things simple. Now, I will never have to worry about paying the mortgage again.

Note: Paying my mortgage bi-weekly pays my mortgage off faster than paying monthly. So, organizing my finances in this way keeps things simple and organized, but it also saves money in this case. A quick calculation estimates that I am saving about $17,000 by paying my mortgage bi-weekly instead of monthly.

Pre-Authorized Contribution (PAC)

A PAC is an agreement that allows a company to reach into your bank account for a predetermined amount of money on a prearranged schedule. These can be very convenient, but also dangerous. I have two agreements of this nature; one with my auto insurance provider and the other is with the Strata for my condominium Strata fees. The convenience is that I do not have to deliver a cheque to these companies every month. Some companies will insist on a PAC as a condition of financing. Others will offer the alternative of post-dated cheques. Some banks charge their customers for each cheque written. Choose carefully, which is best for you.

I discovered the danger in a PAC agreement when I was a member of a health club. When I tried to cancel, I was not allowed to cancel until I filled out documentation at their facility. Their policy was to continue to withdraw membership fees until the documentation is signed. In the end they just wanted a chance to talk me out of quitting my membership. But because of the PAC, I had no choice but to comply. It cost me an additional month’s membership fees before I had this paperwork completed. You also have the opportunity to stop a PAC at your bank. Unfortunately, this costs an additional fee. So, again, choose carefully.

When the ideas above don’t provide a method of automation, most online banking systems offer an opportunity to automate a payment in a more generic way. Check your online bank’s interface for details about their solution.

Credit Cards

One of the fastest ways to negate or sabotage a budget is to carry and use credit cards to pay for items that are not specifically allocated for within your budget. Using a credit card makes it too easy to over-spend. It also makes it more difficult to see where your money went or how much of your budget money is remaining. The ‘Cash Only’ (or debit-card based) budget is a good way around this issue.

Disposable Income

Once you have tracked your income and expenses to a degree that makes your forecasting fairly accurate, you will able to forecast your ‘disposable income’. Disposable income is what is left over after all of your bills are paid. This is where you will see your budgeting efforts pay off. The key is to allocate your disposable income towards your goals in the most efficient manner.

We will talk more about disposable income when we work on a budget. For now, I just want to foreshadow how these pieces fit together. The important points should be to accurately track what is coming in and what is going out on a monthly basis. The rest will follow, when the time is right.

Budget Guidelines

Many personal finance experts have expressed their thoughts on budgeting by suggesting that expenses should be a percentage of income. In that way you are tailoring your lifestyle to your income. Below, we will discuss two of these recommendations.

The 50-30-20 Budget

There is a budget guideline called the 50-30-20 budget. 50% of income goes towards needs like rent, food, household bills (hyrdo, cable, internet). Then, 30% of the income goes towards wants like trips or entertainment. Lastly, the remaining 20% of the income goes towards savings.

While I would love to be able to save 20% of my net income, it’s just not realistic for me. I also find the 50% and 30% measurements to be too vague. But, if you like this way of thinking, you can find more on the 50-30-20 Budget from Forbes here.

Credit Counselling Society

The Credit Counselling Society has a very detailed model that I like. Below is their recommendations. These are the guidelines that I use.

Cost of Living Budget Categories

  • Housing: 35% – mortgage / taxes / strata / rent/ insurance / hydro
  • Utilities: 5% – phone / cell phone / gas / cable / internet
  • Food: 10 – 20% – groceries / personal care / baby needs
  • Transportation: 15 – 20% – bus / taxi / fuel / insurance / maintenance / parking
  • Clothing: 3 – 5% – for all members of the family
  • Medical: 3% – health care premiums / specialists / over-the-counter
  • Personal & Discretionary: 5 – 10% – entertainment / eating out / gaming / hair cuts / hobbies
  • Savings: 5 – 10% – Plan to save money for emergency expenses, as well as for your future.
  • Debt Payments: 5 – 15% – We will talk about debt in a future article.

Unfortunately, if we were use the maximum percentages in the budget above, we would be allocating 123% of our income. So, even these numbers need to be tuned to be helpful. But, this is a helpful framework to keep in mind.

Customized Budget

Now that we have heard what some experts recommend, it’s time we include our own numbers. In our last article, we created a spreadsheet to track our income and monthly expenses. We also discussed tracking income and expenses for a couple of months in a spreadsheet. This is where our bookkeeping skills come in handy. The numbers we tracked for the last two months will become the basis of our monthly budget.

Start with what you know

Area 1 – Begin by filling in all sources of income. In the example above, I expect $2,850 per pay cheque. I have that amount in each of two columns, as I have two pay periods that month. Above the dollar amounts, I put the date of the pay in the grey cell. My total monthly income is calculated in the total cell, to the right.

Area 2 – This area is designed to track the expected amount of the monthly bills. The left-hand column is for the creditor (who you pay the money to). The two center columns is where you put the amount you will pay. Put the correct amount in the appropriate column for the corresponding payday. The comment field, in the right-hand column, includes the monthly due date (or other billing pattern) and the method I use to pay the bill. The comment field is particularly valuable for bills that get charged to your credit card or automatically removed from your bank account. It’s easy to forget these automatic transactions happen. Tracking them like this is a good way to remind yourself.

Areas 3 and 4 will take care of themselves. All you have to do is to enter the money coming in and going out. Area 3 will show you the total amounts that you are making and spending on a per pay basis. Area 4 will show you how your lifestyle stacks up to the experts recommendations.

In this example of budgeting, I have taken a more pragmatic approach than the experts usually delve into. Instead of what the percentages are that we are spending on our lifestyle, I have focused on anticipating expenses to make sure that we are prepared for each bill. Once you have a firm handle on your money’s monthly cycle, you can then begin to mold your lifestyle towards the experts’ recommendations. In the beginning, learn to control your money, then learn to control your lifestyle.

Credit Cards

I have two (2) credit cards. I have an ’emergency card’ with a $1,000 maximum from Capital1, and a $9,000 maximum Avion ‘day-to-day card’. I allow myself a $1,000 allocation on the Avion card every pay period. This includes both anticipated monthly expenses and more generalized discretionary spending purchases. An example of an anticipated expense is my monthly parking pass at work. The expense is charged to my credit card on the first of every month. More discretionary spending would be making a purchase that you didn’t expect to make, maybe because you happened upon a sale that included something that you wanted. The list of expenses within my $1,000 per pay limit are tracked in Area 5 of the spreadsheet shown above. Area 5 is tracked on a monthly schedule, so it is setup for a $2,000 limit.

Because my Avion card gives me points for every dollar that I purchase, I use it for my regular monthly spending. I include my groceries, gas and entertainment in the $1,000 per pay limit. Using a generalized budget amount in this way allows me to not have to track every penny that I spend on groceries. As long as I don’t exceed the budgeted amount per pay, the individual purchase amounts don’t matter.

I know, from my budget spreadsheet above that I can afford to pay $1,000 towards my credit card every pay. Keeping the thousand dollar limit per pay period allows me to KNOW that I will pay off my credit card balance every pay period. As long as I don’t go above that, I will never have revolving credit card debt. We will talk more about credit and debt in later articles. For now just try to plan how to use credit cards as a tool that will work in your favor.

Cash Only Budget

If credit cards only serve as a temptation to you, you might be better off using the ‘Cash Only’ budgeting technique. Once you understand how much money you can afford to spend in a pay period, some people withdraw their spending money in cash. Using cash for your monthly spending means that you cannot accidentally go over budget. When your pockets are empty, you have to stop spending. This prevents some people from overspending with credit cards. If you have trouble staying within your budget, this is a good way to train yourself. A good article on the Cash-Only budget can be found here.


If you have created the financial infrastructure that we discussed my first article, and if you have also tracked your income and expenses as I outlined above, then you will easily be able to understand your month to month finances. We discussed in article #1 that ‘extra’ money should be moved from the operations account to the savings account, if you are debt free. The amount of extra money is shown in bottom portion of my budget spreadsheet, shown above. Since you know exactly what your monthly expenses will be, you can move your excess money to debt or your savings account as soon as you get paid. In a future article we will discuss debt, savings, and investing your savings according to your goals.


There are many experts that write about the various ways, and income percentages, that people should budget to have a healthy financial picture (and future). But don’t forget that a budget has to be customized to your income and lifestyle. I recommend that you start by anticipating and recording your monthly expenses. Allocate your pay as soon you receive it. And, the most important part, is to understand your month to month finances. Use that understanding to plan for financial success and execute your plan every month.