How to Create a Budget that Actually Helps You Save Money

Creating a budget is one of the most effective ways to take control of your finances and start building meaningful savings. By setting clear goals, tracking your spending and following a simple budgeting framework, you can make your money work more effectively for your future.

Why is it important to start saving money and create a budget?

Saving money and creating a budget are the cornerstones of financial health and the primary way to help ensure your financial goals come to fruition. Both tactics working in tandem can maximize the amount of money you’ll be able to grow in your financial accounts. No matter what your plans are for the future, saving money and having a budget ready can help at the very least get you through any turbulent financial times.

Protect your purchasing power

Inflation can creep up on your financial stability by acting as a hidden tax on your savings.

Rather than playing catch up with your money, a proper plan for your earnings and savings (by way of a budget) would help close that gap left by rising costs of inflation.

Maintain financial health habits and turn goals into reality

To help keep your finances in peak shape and hit those milestones, you’ll need a plan of action that you’ll need to work at on a daily basis. Much like your physical health, you need to evaluate your choices and make sure that they’re for the best of your overall health and longevity.

Time is your biggest advantage

Time is the most critical factor in saving and earning money, through compounding interest. While the amount by which your money grows will largely depend on the market, the possibility for exponential growth gets larger with time. You can start at any age and at any time – it’s never too early and never too late.

Retirement Savings Scenarios*

* Assuming an 8% annual return on a $500 monthly investment until age 65

Identifying your savings goals

The first part of creating a roadmap is knowing where you want to go. What are you saving for and how long it will take to achieve these goals.

• Short-term goals: Establishing an emergency fund, paying off credit card debt or saving for a vacation. These plans should be accomplished within a year. The focus is on liquidity and stability to manage emergencies.
• Medium-term goals: Buying a car, funding a wedding or a down payment for a home. These exciting personal goals are usually achievable within a 5-year span.
• Long-term goals: These are the goals that will wind up mattering later in life, like retirement planning, paying off your mortgage or saving for a child’s post-secondary education. While you’re looking at several years, pinning down a precise timeline is more difficult because it aims for wealth accumulation and growth.

No matter the goal, just getting started matters most. Even a small amount may snowball into something sizeable that can hit your targets. Here’s the trick: know how to make the most out of the money you set aside. Matching your money and goals to the right savings vehicles could help in the best way possible. Three of the many savings options available through financial institutions include High-Interest Savings Account (HISA), Tax-Free Savings Account (TFSA), and Registered Retirement Savings Plan (RRSP). Here’s a breakdown of which options may suit which goal, but you should consult a financial advisor to tailor this to your specific situation.

Budgeting for Your Saving Goals*

*These are just some savings options, speak with a financial advisor to find a plan that specifically suits your goals and needs.

Tracking your spending

Tracking your spending is not only one of the healthiest financial habits to have, but it can help ensure your plans come to fruition.

Monitoring the ins and outs of your bank accounts will keep you on top of any major errors or redundancies in your finances. With that information, you can calculate your discretionary spending through a budget. You can do so through RBC Online Banking or your RBC Mobile App, which can provide the information you need to spot unusual or unauthorized transactions and send you notifications on any type of spending.

Reviewing your bank and credit card statements regularly will provide valuable insight into where your money goes most frequently. NOMI Insights, available within the RBC Mobile app, can analyze your monthly cash flow and categorize your spending habits. This can show you where your money is going and where it will be needed for in the near future. NOMI Insights can also predict if you won’t have enough money in your account to cover a regular upcoming expense.

How much money should you save each month?

Though the amount of money you should save each month should be proportional to your earnings and financial goals, financial experts suggest that a good range is around 15% to 20% of your gross income. This way it won’t overburden you financially and it can help your savings grow steadily. You can find the blueprint for this in the 50/30/20 budgeting rule.

The 50/30/20 budgeting rule

The 50/30/20 rule is a simple budgeting framework that divides your after-tax income into three categories: 50 per cent for needs, 30 per cent for wants and 20 per cent for savings and debt repayment. The percentage division can be flexible depending on several factors like family size, income amount and lifestyle. Think of the 50/30/20 budgeting split as a baseline and personalize it to fit your situation. The three main pillars are what matter most – Needs/Wants/Savings.

Identify your needs

Your needs are dictated by what you need to survive – food, rent, utilities, transportation and anything else required for your basic standard of living. When creating a budget, you’ll have more wiggle room to add to this portion because these items are non-negotiables. Just keep in mind that as the budget size for your needs increases, one or both of the other pillars must adjust for the change.

Identify your wants

Wants aren’t essential but provide joy and enrichment. Examples include entertainment (concerts, streaming services, movie theatres), dining out and any kind of luxury purchases (clothing accessories, latest gadgets and high-priced cars). This budget doesn’t want to force you to cut everything fun out of your life, just decide which are most important. Vacations also fall into this category, making the decisions a little more difficult for the budgeter.

Calculating your savings

In the 50/30/20 budget rule, the third and final part represents the portion strictly dedicated to savings and debt repayment. Despite being the smallest amount, it will do much of the heavy lifting in your life to come. This 20 per cent is focused on your future financial security and reaching long-term goals – the main objective of even creating a budget. Beyond building a retirement nest egg, these consistent savings serve as a reliable safety net for emergencies.

Budgeting and saving money on a low income

You can enhance your budget plan, allowing you to save additional money even on a low income. All it requires is a series of small changes to your usual cash flow:

• Set aside a small amount of money from each paycheck. You can build your savings by diverting the cost of a single cup of coffee each week.

• Compare chequing accounts to find the ideal set of features that work for you.

• Consider switching to one of RBC’s low-fee bank accounts which are designed specifically to minimize costs while you build savings. Once you’ve selected the right account, you could put your savings on autopilot. Setting up a recurring deposit on payday helps your savings grow before you’re even tempted to spend.

• Doing an audit of your recurring expenses lets you know where you’re wasting money on redundancies.

• Eliminate any paid subscriptions that you don’t use regularly, especially if you can find free streaming alternatives. Another way to increase savings is to call your service providers and negotiate better deals on phone, internet or television – even by way of getting a bundle deal.

• Leverage any government benefits available to you. Check eligibility for Canada Child Benefit, GST/HST credit or any other provincial supports depending on your circumstances or status.

• Community resources could be of great use, such as food banks and free community programs. You could also benefit from library services as you can learn new skills at no cost.

• Increase income incrementally by taking on side gigs in your free time. Or if you want to make the most out of your current employment, consider asking for a raise or seeking professional development for higher-paying roles.

• Schedule a free consultation with an RBC banking advisor who can help you access government benefits, optimize your banking fees or offer the best savings account for you. Find your nearest RBC branch here.

Building a budget and committing to regular savings can help you stay in control of your finances while working toward both short-term and long-term goals. By starting small, tracking your spending and making consistent adjustments over time, you can create a financial plan that supports your future with confidence.

Frequently asked questions about saving money