How much of my income should be allocated to housing? What percentage of my pay should go towards debt repayment? Savings? Groceries? These are just a few commonly asked questions for people looking for best practices when it comes to budgeting. Vancouver Licensed Insolvency Trustee and debt expert Blair Mantin of Sands & Associates discussed these and other aspects viewers should consider, to support a successful budget.
Watch video, and read more below:
Why is a Budget Important?
For the eighth straight year, paying down debt is the number one priority for Canadians in 2018, yet just one-third of us operate with a monthly budget!
- Meeting financial goals is near impossible without a budget – how will you know whether you’re on track?
- One of the biggest mistakes people make when it comes to budgeting is not comparing their estimates with their actual incoming and outgoing funds.
- A successful budget should be tracked, checked and revisited monthly.
- The first step to making a budget is to track ALL your expenditures for at least a month.
Allocating Expenses in your Budget
Here is a breakdown of some of the main areas that a budget will entail and suggestions as to the percentage of your take-home (after tax) income each category would need:
Housing – 35%
Most financial experts recommend keeping your monthly housing costs within 35% of your total monthly budget – this includes mortgage or rent and all utilities.
- Metro Vancouver residents may find housing costs to be one of their biggest challenges. It’s no surprise to anyone that housing costs in/around Vancouver are the number one ‘budget breaker’ that we see at Sands & Associates.
- Caution: If you are considering moving out of the Metro Vancouver area to cut down on housing costs, don’t forget to factor in any corresponding increased transportation costs!
Transportation – 15%
BCAA estimates that the average compact car costs about $9,500 per year. (For reference: the average BC resident spends $5,700 on groceries in a year!)
- Many people underestimate how much transportation expenses really are, and as a result overspending happens frequently (especially if you’re not keeping track).
- Take advantage of public transportation if possible.
- Consider car-sharing options such as Car2Go, Modo, etc.
- Before purchasing a vehicle, be sure to account for all vehicle-related expenses (Insurance, maintenance and repairs, fuel).
Food and General Living Expenses – 30%
Allocating around $250-300 a month for groceries per household member is a good place to start.
- Food costs will vary hugely depending on dietary restrictions, shopping habits, and number of people in your household.
- Staple food items tend to increase in cost annually thanks to inflation; help counterbalance these expenses by preparing shopping lists and avoiding impulse buys at the grocery store.
- You don’t have to completely nix traditional ‘budget breakers’ like eating out, pricey coffees, and nights out, but be sure to allocate a piece of your budget to these costs if they’re regular ones for you.
- Don’t guess when it comes to costs! Keep track to see how much you’re really spending.
Savings – 10%
Most financial experts agree – paying yourself first is key to accumulating savings!
- When budgets are tight, savings are usually one of the first things to be cut…but a lack of savings can be a huge disadvantage during a financial emergency.
- Set up automatic withdrawals to a savings account (even if it’s a small amount) each month so you’re saving something.
- If your employer offers matching savings or RRSP contributions plans, don’t hesitate – always say YES to free money!
- Did you know? RRSPs are one of the few funds that are safe from your creditors. Even if you file a personal bankruptcy in Canada, these funds are protected!
Debt Payments – 10%
Paying down debt continues to be a top priority for Canadians, and with 90% of us saying we have more debt today than we did five years ago, it’s no wonder!
- Think about how much 10% of your income is – if you can’t make actual progress towards paying off your debt at this rate then it may be time to evaluate professional debt management solutions.
More about Sands & Associates:
An industry leader in debt management, Sands & Associates has been helping people get out of debt since 1990. With 17 BC offices and a team of committed debt professionals, we are the people you should contact when you want a plan to become debt-free. We know that money problems can happen to anyone, and believe that our non-judgmental and straight-forward approach to debt management helps to set us apart from other Licensed Insolvency Trustees.
Book your free debt consultation with a debt expert at Sands & Associates today!
