Budgeting and Balancing Living Expenses
Did you know that the average household debt in Canada comes to an eye-watering $20,759?
That’s not even counting mortgage debt.
With this in mind, it’s easy to see how so many Canadians feel that they are forced to pile debts on top of other debts to get by.
If you feel mired in debt, you have many options available to you.
But the most sustainable way to get debt-free for life is to master the fine art of budgeting.
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Of course, for many, this is much easier said than done.
Especially when you’re a freelancer, small business owner or self-employed contractor whose income can be sporadic.
How much should you be spending on your day-to-day living expenses?
What proportions of your income should be going towards each monthly expense?
Here we’ll break it down so that you can become a master of budgeting and chart a course for financial freedom…
Your mortgage or rent is the biggest living expense for most households and, for obvious reasons, should be your number one priority.
Ideally, the cost of your housing should not exceed 35% of your gross household income.
This allows you sufficient leeway to take care of your other living expenses and keep building your disposable income with each passing month.
This figure should also account for your property taxes, home insurance and strata fees if you live in an apartment building.
Your household debt repayments are obviously a high priority.
However, they shouldn’t be allowed to consume your budget.
They should be kept between 5% and 15% of your household’s gross income.
However, that’s not to say that you should be making the minimum repayments on your loans or credit cards to keep them at this figure.
This will result in you prolonging the debt and paying much more in interest as the years go by.
Unless you work from home and everything worth having access to is within walking distance, it’s likely that you will have some regular transportation costs.
These should account for about 15%-20% of your household’s monthly expenditure.
Transportation costs may encompass things like your fuel, maintenance, parking and insurance on your own private vehicle as well as public transportation costs like buses and trains.
It’s hard to think of a more essential household expense than the food you eat.
The food budget for everyone under your roof should account for around 10%-20% of your monthly income.
This includes the cost of groceries as well as the cost of take-out food or eating in restaurants.
As long as you’re cooking at home most of the time and relying on take-out, fast food and restaurants as an occasional treat.
However, when you’re relying on restaurants and fast food outlets for the majority of your meals, that’s when your food budget can spiral out of control.
If you fall in love with cooking at home your budget (and your waistline) will thank you.
If you’re serious about being free of debt, you need to get into the habit of paying into your savings account regularly.
Not to mention choosing a savings account that’s going to work a little harder on your behalf than most of those offered by high street banks.
Believe it or not, there are savings accounts out there that will give you as much as 2.8% interest on your savings.
Who doesn’t like free money, right?
By all means change the amount you pay in each month when times are prosperous or lean, but make sure you pay something in every month.
Ideally, at least 5% of your monthly earnings should be kept in your savings account so that you need never rely on credit cards and loans when unforeseen expenses arise.
Your utilities encompass more than just your gas, electricity and water in 21st century Canada.
It also includes your cell phone bill, landline and broadband internet.
Between them, your utilities should account for around 5% of your monthly gross income.
Fortunately, Canadians who have access to public health insurance have way fewer healthcare costs to account for than our neighbours to the south.
However, we still need to budget for various medical expenses.
These may include private health care premiums or over the counter medicines as well as any specialist healthcare needs which are not covered by public health insurance.
It’s pretty hard to argue against clothing as a legitimate household expense.
But if more than 5% of your gross monthly income goes towards clothing your family you’re paying too much.
If you’re the kind of person who absolutely insists on designer labels, you may be surprised by how much you can get pre-loved on eBay or sites like Facebook Marketplace.
Personal and discretionary (5%-10%)
Your Personal & Discretionary costs include all the fun things in life.
This includes things like your cable or your subscription / streaming services like Netflix / Audible / Spotify etc..
It also includes things like trips to the movies, date nights with your spouse, hobbies, alcohol, tobacco and anything else that doesn’t fall into the above categories.
Struggling to keep your debts under control and budget effectively? We can help!
Are your debt repayments significantly higher than the recommended 5%-15%?
Does paying down your debts make it virtually impossible to pay into your savings?
Have your debts become too numerous and unwieldy for you to budget effectively?
Since 1999 we’ve been helping Canadians just like you to reign in their debts and take back control of their finances.
Our team can help you to determine the best debt relief solution for you so that you can put an end to threatening calls from creditors and live a happy life that’s free of debt.
Want to know more about our services.
We’d be delighted to arrange a risk-free, zero-obligation and completely confidential callback.
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