PF Basics: Budgeting 101 – What is a Budget? How to Set One?

by | Jul 13, 2026

Let’s just get something out of the way. Everyone needs a budget. Whether you’re living paycheque to paycheque, or are the world’s first trillionaire, everyone needs a budget.

If you are a regular reader of this column (first, thank you) then you likely already know a little bit about investing, and are already working on optimizing your portfolio and buying the best stocks for maximum return. Perhaps you have even bought Harvest Portfolios’ latest offering, the Harvest SpaceX Enhanced High Income Shares ETF (TSX: SPXE), that gives investors access to SpaceX alongside monthly income.

If this is you, then yes, even you need a budget.

What Is a Budget — and How to Set One

According to Merriam-Webster, a budget is the amount of money that is available for, required for, or assigned to a particular purpose, and also a plan for the coordination of resources and expenditures. For you and me, that means a budget a simply a list of expected income and expenditures, and hopefully one in which the income exceeds expected expenditures.

A budget should tell you, at a glance, how much money you expect to come in, and how much you expect to go out. Already, it should be clear why everyone needs a budget, whether you’re a teenager saving for an expensive trip to Sephora, or OpenAI planning to IPO.

Once you have a budget in place, you can start to work on and achieve all your financial goals, whether that is saving for retirement, education, paying off debt, building an emergency fund, paying for an expensive trip, or anything else. A budget is the difference between you deciding where and how to spend your money, and you panicking at the end of each pay cycle wondering how to make certain expenses happen.

If you spend any time at all reading about budgets and budgeting, you will quickly come across two popular methods of setting a budget.

  1. Bucket Style
  2. Zero-Based

Lets look at each in turn.

The Bucket Approach to Budgeting

The bucket approach is similar to the envelope approach. The way this works is you calculate all of your income and then divide it into a few buckets – in the envelope system, you withdraw all your income in physical cash, and then divide the cash into separate envelopes.

In most cases, the buckets are three, one each for needs (which includes things like housing, food, transport, etc.) savings (which includes investments and repayment of loans and other debts) and finally wants (shopping, entertainment, eating out, etc.) Others divide their earnings and income into even more buckets – travel could be one, or holiday spending another. Once you have your buckets in place, you allocate your income into them.

How you build your buckets is based entirely on what works for you. Remember, the most effective budget is the one you follow.

In the traditional system, the money is divided into 50% for needs, 30% for wants, and 20% for savings. More recently, people have been playing around with the numbers. For instance, if you’re early in your career, or have a lower household income, chances are housing might take up 40-50% of your income, in which case, that bucket gets larger. Those who are working the F.I.R.E. system sometimes choose to make their savings bucket the largest.

Tracking Every Cent

The other popular budgeting method is the zero-based method, where you track every single dollar spent, and then assign a category to it. In this method, you have accounted for every single expenditure, and at the end of it, you should be left with zero.

This is a more complicated style of budgeting, but it works for some people. Again, the most effective budget is the one you follow.

The 5-Step Budget

For me personally, I follow the 5-step budget plan. Here is what I do:

Step 1: Know How Much You Have

I make sure I know exactly what my income and earnings are, because that helps me figure out how much I have to play with. This step is critical. If you miscalculate how much you have, everything else gets thrown off, so make sure that you get this one right.

Step 2: Know How Much You Spend

Second, I clearly track every dollar I spend. For me, I like the zero method more, so I use an Excel sheet to track all my expenses down to each cent. My friends sometimes think I’m extra, but I find that this works for me.

Step 3: Pick a Style of Budget for YOU

Once you know exactly what you make and what you spend, choose a style of budgeting that works for you. You could build out buckets, or go the Zero-method, or a combination of both. Only you can decide what works best for you.

Step 4: Allocate Money to Goals

You need to know what you’re saving for. So make sure you have goals, including setting up an emergency fund, building savings, a housing fund, a debt reduction target, and anything else you need.

Step 5: Review

Your budget is not a one and done thing, because life is not one and done. Things change, you could get a raise or a bonus, or you could get laid off, or you could get married, or get an inheritance. Any life changes, good or bad, could impact your budget. So review it.

Make Your Budget Count

Finally, once you have your budget in place, remember that it is important that your budget work for you. Here are a few questions that could help you figure out your own plan:

  • How much should I put towards my financial goals to meet them?
  • What are my values? Am I spending towards them?
  • What would my budget look like if I had no mortgage/student debt/credit card bills?
  • Where would I put that extra money?
  • When looking at recurring expenses (memberships, streaming services, etc.) would you buy this exact same thing today?

Do you have any tips or questions that I missed? Let me know, and good luck on your budget journey!

Disclaimer

The information is meant to provide general information for educational purposes. Any security mentioned herein is for illustration purposes and should not be taken as an invitation to purchase or sell such security. This should not be construed as investment advice. Please read the relevant prospectus before investing.

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