Managing Finances in Canada

Understanding Your Budget

An important part of managing your money is creating a realistic budget. A budget will help you identify your earnings and your expenses, so you can make smart choices about what to do with any extra income. It also helps you figure out how to save for important purchases, like winter clothing or school supplies for your children, or larger items such as a car or a house.

Budgeting Basics

Everybody should have a budget. Remember that your budget is unique to your particular situation, so do your own calculations and be realistic. Because most of your bills (rent or mortgage, phone and electricity) are due every month, it’s usually best to do your budget on a monthly basis. It’s convenient to make your budget on your computer, but if you don’t have one, pen and paper work just as well.

With a budget, you can figure out how much money you bring in every month, how much goes out and you can decide what to do with any funds that are left over.

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1. Calculate Your Monthly Income

Make a list of all the ways you make money every month. Be sure to subtract any taxes and other deductions that are taken “off the top.” To calculate your monthly income include:

• Salary (after deductions, such as tax, union dues, Canada Pension Plan and so on)
• Sales commissions
• Bonuses (if applicable)
• Tips (if you work in the service industry)
• Interest income (for example, from your savings account)
• Rental income (if you rent part of your home to others)
• Student loans
• Government benefits, such as Employment Insurance (EI) or social assistance (welfare)
• Other income sources

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2. Calculate Your Monthly Expenses

Here you’ll include all the things you spend money on — essential items (such as food and housing) as well as non-essential items (such as entertainment). It’s easy to overlook items, so you may find it useful to keep track of everything you spend for a month to get a clear picture of where your money is going. Your list should include:

• Your monthly rent/mortgage payments
• Utilities (heat and electricity)
• Telephone and Internet
• Maintenance fee (if you live in a condominium)
• Transportation (gasoline, parking, monthly public transit spending)
• Car loan and auto insurance payments
• Credit card balances and loan payments
• Insurance premiums (home, life, medical)
• Groceries
• Clothing
• Cable TV and movies
• Restaurants
• Newspapers, magazines, DVD purchases and rentals
• Club memberships (gym or social group)
• Personal-care items (such as shampoo, soap and toothpaste)
• Household items (detergent, cleaning supplies)
• Spending money

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3. Determine What to Do with What’s Left

Now subtract your expenses from your income. This amount shows how much money you should have left every month. Don’t be surprised if this amount is greater than you expected. People who live without a budget simply never get the chance to make smart saving choices because they spend their extra funds without much thought.

Pay yourself first. Being thoughtful about allocating your extra funds means putting that money to good use by preparing for your future needs. Now is the time to allocate your extra funds to things like retirement savings, education savings, a down payment fund or even vacation savings.

If you find that you don’t have any money left over, think about ways to reduce your spending, especially on non-necessity items such as the magazine you buy on your way to work or eating out at lunchtime.

If these reductions aren’t enough, you might have to consider making bigger changes, such as paying less rent, taking public transit to work instead of driving, or earning more money.

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Your Budget Should Change as Your Life Does

To really maximize your budget, go back and do it again every once in a while — especially after a major life change such as a new job or marriage. This will help ensure that you’re not overspending on non-necessity items and will help you plan for savings.

With time, you’ll realize that a few simple calculations can add up to a lifetime of worry-free savings.

	Canadian Bankers Association — provides a useful series of booklets for consumers. Read the booklet Managing Money for detailed information about budgeting.
	Citizenship and Immigration Canada — provides valuable information for newcomers. Read Fact Sheet: Budgeting, Banking and Savings.

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