Want to get out of debt? The most useful tool you’ve got at your disposal is a household budget.
“A household budget is an essential component to helping you spend within your means and keep your debt load down. It’s important to have a budget that helps you address all of your financial goals and is structured in such a way that you can stick to it for the long term,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Here is how to make your budget work for you and some suggestions on what to include on your worksheet.
Use a budget worksheet
Using a budget worksheet is a great way to stay on track every month. Worksheets will vary from person to person, depending on your financial situation. On the same note, plan to revisit your budget worksheet about once a quarter to see if the template that you’ve set up makes sense.
There are a number of free templates available or you can even use a simple Excel spreadsheet, if that works for you.
“Your finances and your circumstances often change over time. In order to make your budget worksheet the most effective that it can be, you’ve got to be flexible and be proactive in changing your budget to suit your lifestyle and your goals,” says Schwartz.
What’s your goal?
While your goal isn’t a line item in your budget, you need to define it right from the beginning. It can be motivating to include it on your budget worksheet. Be specific when stating your goal and attach a timeline to help you shape your budget.
State your income
Your budget needs to reflect what your household take home pay is. In addition to your paycheque, do you get anything else on regular basis (i.e. support, childcare benefits, etc.)?
If you get other lump sums during the year (i.e. a bonus or other payment), make note of them and you can decide how to direct them after you’ve established your monthly budget.
Gather your expenses
Before you start to break down your expenses, make sure that you’ve got all the correct information. Gather all of your bills so that you know exactly what debt obligations and other bills that you’ve got.
Split your expenses into sections as follows:
- Housing expenses (Mortgage/rent, property taxes, homeowner/tenant insurance, condo/association fees, savings for home maintenance/repairs)
- Utility costs (electricity, water, gas/oil, cable/internet/phone)
- Food (groceries, eating out)
- Family Expenses (childcare, children’s lessons/activities)
- Health and Medical (any insurance premiums and costs that you pay out of pocket)
- Transportation (gas, parking, bus pass, car loan or lease payment, car repairs)
- Savings (emergency savings, retirement savings)
- Debt payments (loans, credit cards)
- Extras (entertainment, subscriptions, clothing)
With all of these items, have columns for what you project your cost to be, alongside what the actual cost is. This is important so that you can see how accurately you are managing your expenses.
How to improve
If you are looking for extra room in your budget so that you can pay debt down faster, visit your variable expenses (i.e. your food, utilities, transportation and extra categories). You can cut down your food expenses by using smart shopping strategies and eating in more often. You can reduce utilities by adopting energy efficient habits. You can reduce your transportation costs by carpooling or walking whenever you can. You can eliminate extras as much as possible to really make an impact on paying down your debt.
Setting up a working budget is your first step to getting out of debt. We can help. Call one of our trained credit counsellors at or check out our online debt analysis.