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Budget vs financial plan: What’s the difference?

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Two of the most common personal finance terms are “budget” and “financial plan.” Most Canadians have heard of these two things, especially those that want to take control and plan for their financial future. Both of these tools are crucial in helping you become financially stable both now, and in the future. But while both go hand-in-hand, it’s important to remember that they are not the same.

So what exactly is the difference between a budget and a financial plan? Both include many of the same financial aspects, so it can be difficult to tell them apart at first. Here are some key differences to remember to help you distinguish between your budget and your financial plan.


Where you’re going vs. where you are today

A budget focuses on your financial present – immediate money issues and what you do with your money. It will help you map out expenses by taking a look at how much you earn and how much it costs to maintain your current lifestyle. The most notable benefit of a budget is that you consciously decide where your money is going. It helps ensure you pay bills on time and have enough left over for groceries, while also offering financial wiggle-room in case of an emergency.

A financial plan, on the other hand, considers your financial future. It looks at your entire life and focuses on reaching larger, more long-term goals. A financial plan aims to align your financial activities with your money goals so that you can maintain your lifestyle into the future. An essential question driving a financial plan is “How can you get the most out of your life?”


Differences in strategies and tactics

Having a budget is one of the most impactful ways to successfully your money because it helps you account for what you do with your money while helping you save. Overall, budgets empower you to spend in a way you see fit while staying in your means. Your budgeting style, then, will ultimately determine how financially stable you are.

Many people often associate the word “budget” with restrictions, unnecessary hassles, and headaches. Some people may even feel as though they are not making enough to have a budget. However, a budget helps you prioritize spending and focus your hard-earned cash on the things that are most important to you.

A budget can help you:

  • Stop overspending.  People without budgets often end up overspending each month. This leads to a limit in spending power in the future. Use a budget to help you determine when it’s time to stop spending. Our budget calculator can help you get started.
  • Be flexible. Having a budget allows you to cover unexpected expenses as they happen. It also helps you recognize spending issues and adjust accordingly.
  • Be in control. If you often wonder where your paycheque went and what happened to it, budgeting can help put you back in control. It will help you have a solid plan in place that is easy to follow while giving you the power to make any changes starting today. Make sure you check on your budget daily, since monitoring it regularly will keep you from overspending. Making decisions at the beginning of the month will also make it easier to manage your money.


Creating a financial plan will require a long-term strategy for getting you where you want to go. When you build your budget, you are preparing for day-to-day money management. Having a grasp on how much money to budget once you pay expenses allows you to fully be aware of how much money can be put towards the goals you’ve aligned in your financial plan.

To begin creating your financial plan, think long-term. This can include when you hope to retire and how comfortable you want to be. If that seems a bit too far down the road, think about where you’d like to be in the next five or 10 years, financially speaking.

Ask yourself these kinds of mid to long-term questions:

  • Do you want to purchase a home? 
  • Are you planning a wedding? 
  • Are you starting a family? 
  • Perhaps you’re going back to school. Will you have education expenses? 

Knowing the answers to these questions can help you determine the path you’ll need to take to make sure you achieve those dreams.

Once you’ve identified your goals and dreams, you can begin to break down the steps that you need to get there. For example, if you dream of owning your own house, you will need to reduce your debt while saving for a down payment. It helps if you assign a timeline to this part of the process because it will ensure that you continue to move forward. However, if you happen to reach a step early, you can move onto the next step as soon as you achieve it.


Set yourself up for financial success

A financial plan is your financial road map to your goals and dreams. It will help to identify where you’re going, and any bumps you may hit along the way. It will help you identify your goals, what you need to do, and what amount of motivation is necessary to achieve them. Don’t forget to adjust your financial plan as needed. Remember that financial plans are fluid and can change as your goals and dreams change.  Most importantly, your financial plan is a guide to keeping you on the right track to reaching those financial goals.

The key to the success of your financial plan is your budget. It will let you see how much extra money you have to set aside for your goals while identifying problem areas when it comes to spending. Get both started with Planswell today.


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