How To Create a Wealth-Building Budget


Over the years (so many years) that I’ve been writing on Money After Graduation, I’ve left many posts about money basics back in the archives. Which is too bad, because I feel like over time, not only has my knowledge of more complex financial topics increased, but my philosophies and perspectives of the fundamentals has also expanded.

When it comes to budgeting, most people think of it in the context of managing their spending, and that is the purpose it will initially serve. But what if you changed your perspective to develop a budget where the goal was to make you rich? Below is an outline of the very basic budget, and how it should transform over time as you take control of your savings and debt. Remember, building lifetime wealth is a lifetime journey, so be patient with your progress!

What should my budget look like?

I get this question all the time, and the answer is simple: when you’re just starting out, your budget should look like this…

Screen Shot 2015-11-30 at 5.00.35 PM

This is a great guideline to follow when figuring out what you can afford and how to allocate your money, and it’s exactly the chart I recommend in my downloadable Millennial Money spreadsheets.

For a detailed breakdown, here’s what the categories mean and include:


This includes all housing costs, from rent/mortgage to utilities and property insurance. Anything that goes towards keeping a roof over your head is housing! This should be 35% of your budget or less. If it’s more, you might be “house poor” and have to cut back in other categories to afford where you live!


This is all vehicle or commuting costs, from bus passes to gasoline for your car. You can elect to put your car payment in this category, or under “debt”. If you have more pressing debt, such as credit cards or student loans, I would keep your car payment under Transportation to create a balanced budget. 15% is the absolute maximum you should be spending on transportation; the lower the better! If your vehicle is costing you more than 15% of your net income, you should rethink public transit as a viable commuting option.


This is all Savings and Investing — and I mean ONLY savings! Things like saving up for a vacation or a new car are NOT savings, they are planned spending! You have to be really honest with yourself about what constitutes savings. If you have any kind of savings plan through your employer, feel free to count it in this category. Even if it’s taken off of your paycheque before it hits your bank account, it still counts! You should be saving minimum 10% of your net income, but the more, the better. If you are below 35% for housing and 15% for transportation, throw a bit extra in your savings!


This is all the payments you’re making towards any kind of debt, from credit cards to student loans. If you put in all your debt payments and find you’re below 15% of your net income, increase those payments — you can afford to!  It is a good idea to choose cheaper housing and less transportation costs if it means you can put more towards debt. Always save at least 10% of your income, but after that, anything extra should be going towards your debt!


This category is everything else: cellphone bills to beer to clothes, plus groceries, gifts, and vacations. Whatever else you need to buy that doesn’t fit neatly in the above categories goes here. 25% of your net income should be enough to meet your needs. If you find you’re spending more than 25% here and you have debt or are not saving at least 10%, this is where you need to cut back to balance your budget. It might seem crazy to have a category that let’s you go to movies or have wine with friends when you’re in debt or saving for a big goal, but it is super important that you give yourself some breathing room in your budget! This will keep you from feeling constrained or trapped by your debt. It is good to throw extra money into savings and against debt, but leave some in your budget to take care of yourself too!

In addition to working with the budget above, you should be focused on the following 4 financial goals:

  • Saving a minimum $3,000 in an emergency fund
  • Start a retirement savings account (this should represent at least half of your savings!)
  • Pay off all debt
  • Reduce spending (the less you live on, the better)

These are essential for creating the foundation on which you will build your net worth. But what happens if your budget balances and you’ve already got a trusted emergency fund and your debt is all gone?

Start budgeting to build wealth!

After you’ve tackled the above, your budget needs a makeover to make you rich. Now it should look like this:

Screen Shot 2015-11-30 at 5.00.43 PM

Now it’s only four categories, and one got really, really big.

This budget is NOT for everyone, because it is a challenge and if you’re just starting to get the hang of your finances, it can be intimidating. After all, this budget makes a few assumptions:

  • You have no debt whatsoever, including no car payment
  • You earn an income large enough that lets you afford housing in your area for less than 30% of your take-home pay
  • You can save 35% of your income while still being able to pay your phone bill and buy groceries

I realize this is a big ask, but this is the budget that is going to make you rich. Perhaps you can even do better, and lower your housing and transportation costs further, or find you don’t need 25% for miscellaneous spending. Maybe your housing is too expensive in your area, but you can get your miscellaneous spending under 25% of your net income. All of these would let you increase your savings rate even further, which is the most important part.

For many, this will seem totally crazy.

Most people think they will have a car payment for life, or that they cannot save 1/4 of their income, let alone more than 1/3. And that is why most people will not become wealthy in their lifetime. But just because you cannot accomplish the above right now, doesn’t mean you never will. Use it as something to strive towards, and keep adjusting your budget as you go.

Eventually, the above can change even more dramatically. For example, imagine you choose not to have a car and walk or take public transit everywhere so your transportation costs drop to 2%. Imagine you pay off your mortgage in your 30’s or 40’s and your housing costs drop to 8% of your income. This would let you increase your savings to 60% (!!!) while also increasing your spending to 30%.

Screen Shot 2015-11-30 at 5.30.46 PM

That doesn’t sound too bad, does it? I’d be down for bolstering both my savings rate and my wine budget!

The point is, your budget is flexible to the choices you make, and will probably change over the years as you make more progress with your finances. But the focus has to be building wealth, not spending. You cannot keep the mindset of upgrading to a bigger house every 5 years because raises in your job have given you more buying power. You cannot think a car payment should always be in your budget. You have to commit to getting rich!

The thing to remember is: it’s not easy

I’m not telling you to save 35%+ of your income or live without debt because it’s easy. It’s not. It’s hard to drive around an older car, or go without one entirely, when all your friends have financed new ones. It’s hard to decide to limit yourself from going out to dinner all the time or buying the clothes you want. It’s hard to say no to vacations. We have become so accustomed to funding our lifestyles with credit, you will look like you make half of what you do just because you choose to live within your means. Sometimes when you look at your savings account, you will only think about all the things you want that that money could buy, but you can’t have. It’s not easy.

You just have to remember that it’s worth it.

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32 Comments. Leave new

  • The super-wealthy budget is actually pretty achievable if you pay off your house (or earn a hella ton of money, hella ton). I mean the majority of your 30% Other will go to daycare if you have kids, but it really can be done (PS- I’m super hypocritical on this. I have a paid off house, and still spend a huge portion of my income on my house).

    • Hahaha this is totally my forecast of the kids scenario – fun money will be spent on daycare. I’m glad I’m building accurate expectations for the distant future! Every time friends get to talking about the monthly cost of daycare I almost pass out.

      That said, it’s a really good reminder that in the next few years, when I’m looking at housing costs, that I’ll need to factor in this probably-large chunk of my budget when looking at how much I can actually afford, haha.

      • #truth

        I looked it up in my area (because let’s be real, I’m married and over 30 now) and it’s over $1000/mo for ONE CHILD.
        What if I have 2?

        Daycare is definitely going to suck up the fun money in the future.

    • Hahaha I like the hella ton option!!

      Congrats on your paid of house! That’s a big accomplishment!

  • We’ve always tried to live on one salary and bank the other, but we are guilty of sometimes mixing planned spending with pure savings in terms of knowing that we’ll need a new roof in a few years and other things like that. You’re so right to point out that this is a progression over time!

    • It is so easy to put away money for planned spending and all it savings. My husband even did this with our wedding — we called what we put in our joint savings “savings”but we really just spent it within a year =p

  • Thank you for taking the time to write this, it’s really well-written and informative. I think so many Canadians would benefit from even saving 15% of their income. Automating savings is, in my opinion, the best way to go. I recently written about automating savings here:

  • I don’t usually include savings in my budget – it comes out before teh budget 😉

    My 2014 spending breaks down to: 62% savings, 20% other, 18% housing, 2% transportation. This is a pretty typical year. I don’t go out to dinner much. I take lots of trips. My car is paid off – I bought a subcompact in cash in 2010 and if my boyfriend has his way, our next car will be used rather than brand-new. If my mortgage was paid off, that split would look like 71% savings, 20% other, 8% housing, 2% transportation – pretty close to your super wealthy budget. I’m all about building wealth in your twenties if you have the ability to do. The compound interest will pay off for your efforts so much.

  • I just paid off my student loans, and now I’m trying to build my wealth. My goal is to get to something like the super wealthy budget, but for now I’m at about 1/3 fixed costs (rent and bills), 1/3 on groceries and other, and 1/3 savings. With my automatic pension deductions my savings rate goes up to 41%, and if I get a good tax return and bank that too I might get to 45%. Over 50% would be awesome, but I think I’ll have to earn more since there’s only so much I can cut my costs without living like a monk. Still, having my debt paid off is the best feeling ever, and I can’t wait for interest to start working in my favor instead of against me.

    • My initial plan was to save 40-50% and then not inflate my lifestyle further as my income went up. It’s worked out great! Now I save 60-70% or so (except in 2013 when I had an “income windfall” and saved 75%) and have the same lifestyle I decided on several years ago. So it sounds like you’re off to a great start – no debt and investing for yourself to build wealth!

    • Same! I just paid off my loans too, and it’s a struggle to not want to go spend those funds on something more fun and sexy than an IRA, lol!
      I’m also in a fortunate position with my job (in the USA) that I don’t have to pay into Social Security; those funds go straight into a 401k-type account with a 5% employer match. With that and the 10% I put into my 401k it shoots up to 25% savings, and I’m increasing to 30% in the new year.

    • This is fantastic! Congrats on your progress!

      1/3 regular savings rate is incredible, and getting that to 40-45% is even better!

      Well done paying off your debt!

  • Bridget, this just made so much sense to me and helped me put some percents and numbers to things I’ve been struggling with. Holy man. Thank you – the starter chart gave me a solid direction to go to clear up the last little bit of garbage debt I’ve had cluttering my life since I came back from living abroad. You rock : )

  • Putting my car payment under debt payment makes this budget template work so much better for me. I’ve always struggled with getting transportation under the 15% because of it. My plan for 2016 is to reign in my spending and get the car paid off to free up more for saving and planned spending. Great post 🙂

  • Once I finally kill my student loans, I’ll be at your wealth builder budget 🙂 its always reassuring to have someone else agree with your financial habits especially when most people are in a spending mind frame

    • We live in a society where it is perfectly OK to flaunt the proof of your conspicuous consumption (even if the bank owns most of that stuff) but considered in very bad taste to brag about how much you’ve got in your long term savings/ investment plans.

  • Thanks for sharing. Very motivational. Just in time for my 2016 budget, thanks 😀


  • I like what you said there Bridget – budgetting to become wealthy instead of just managing our expenses. I definitely had an epiphany reading this because we’ve gotten comfortable with our budget as a couple – always spending less than what we earn. This adds a new dimension to our budgetting and I will be getting on that Wealthy Budget asap ;D Thanks for this!!

  • I hate budgets, yet I love yours! haha. The way you break it down is so simple, easy to understand and fun. Your Millennial Money Spreadsheet should be a required tool for all college graduates. All of it can just feel so confusing, especially when you’re starting out. I love the message that your preaching and the way you do it.

    I was playing around with your spreadsheet a few weeks ago and my debt repayment category was in bright red and classified as Way Too High, haha. Sorry for breaking the guidelines 😉

  • I love this! I’ve always done budgeting the first way, but now that I’m done paying off my student loans ($55,000 worth of debt FINALLY gone! sorry, it still stings) and have my emergency fund fully funded, I’m excited to look at budgeting as a wealth building tool.

    I’m sure you’ve opened up a lot of eyes with this post!

  • One of the questions I struggle with when it comes to savings is how to differentiate retirement savings and saving for an emergency fund or investments. It seems that the consensus is 15 percent should go toward retirement, so are the budget examples assuming that 15 percent is already taken out for an employer match 401k or IRA?

  • Your Super Wealthy Budget is such a great goal for those of us still digging our way out of debt. That’s what I want my family’s budget to look like someday.

    Also, I just found your site and I have to say that this is just beautifully done.

  • Great post, as always, Bridget. I love the visuals too.

    Quick question – where would you put something like life insurance? Based on these categories it seems like “other” but is also something really important to have (and hopefully not need).


    • It’s an “other” — but if you don’t like that category, you can also put it under “household”. It fits nicely there with tenant/home insurance.

      • Thanks for the quick reply. What I decided to do was use part of my tax refund to pay my annual premium in full, which saved me about $250 for the year. Then I’m going to put what I budgeted for monthly premium into savings.

  • My son is a 23 year old PhD student who budgets

    Housing: 22% (shared 2 bedroom apartment)
    Transportation: 1% (Ottawa Upass and bike repairs)
    Debt: 0% (paid off all of his student loan debt within a year of graduation)
    Savings: 60% (he now contributes this amount to his TFSA every time he gets a scholarship deposit)
    Other: 17% (doesn’t drink alcohol, enjoys the rare meal out but enjoys them most in foreign countries.)

    So I guess that, except for the breakdown between housing and other, he would be classified as “super wealthy”. And before you ask … he hasn’t lived at home since high school and he paid his own way (student loans, scholarships and summer jobs) through university. However, since his scholarships are tax free his income approximates someone who has a before tax income of $50000. (Which is equalled or surpassed by many recent grads.)

    His advice to recent grads would be to keep living like a student on a shoe string budget until you have paid off your debt and achieved a decent saving rate.


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