Balance Sheet and Budget
A budget not only shows where money is spent but it is also an indispensable tool for forecasting the impact of certain purchasing decisions or making certain commitments.
To set a budget, you need to determine the family income available and compile all of the household’s expenditures:
- Basic expenditures such as shelter, transportation, food, health care, education, daycare fees and loan repayment fees that are not otherwise included in housing or transportation fees; and
- Discretionary expenses such as leisure activities and trips, restaurants, donations, gifts and the lottery.
By subtracting your expenditures from your available family income, you will quickly see if your budget is balanced, or has a deficit or surplus.
Is your budget realistic? To make it easier to set your budget, a budget calculator is available on the Financial Consumer Agency of Canada website.1
To take a critical look at your consumption habits, compare your expenses to the average expenditures of Canadian households. In 2013, Canadian households spent on average $58,592 on various goods and services. According to the income quintile,2 the share of the main expenditure categories in the budget for these households is presented in the following table:3
|Inferior quintile||Second quintile||Third quintile||Fourth quintile||Fifth quintile|
|Average expenses per household||$31,442||$47,791||$66,723||$93,005||$155,888|
|Shares of expenditure (in %)|
Clothing and accessories
By participating in a systematic saving program, you can save a fixed percentage of income on a regular basis. The chances of such a program succeeding increase if the withdrawals occur when funds are deposited. Payroll deductions are beneficial in this regard. Moreover, if these funds are invested in an RRSP, you could benefit from immediate tax savings due to reduced source deductions (see Section 1).
Consider savings as the first expense that automatically reduces your income, and create sound savings habits.
Non-deductible interest (mortgage, personal loans, credit card balances) is paid with after-tax dollars. Consequently, you have to earn $200 in pre-tax dollars to repay a $100 in non-deductible interest.4
Renegotiate your loans if you can obtain better rates without too many penalties and stay below your borrowing capacity in order to be able to deal with unforeseen situations and possible rate increases.
1 At the following address: http://www.fcac-acfc.gc.ca/Eng/resources/toolsCalculators/Pages/BudgetCa-Calculat.aspx.
2 Quintiles are created by classifying households in ascending order of their total income, then dividing them into five groups containing an equal number of households so that each quintile represents one-fifth of the total.
3 Statistics Canada, Survey of Household Spending, 2013, Table 2 – Shares of total expenditure by income quintile (January 22, 2015).
4 Based on marginal tax rate of 50%.
This document has been updated on August 31st, 2018 and reflects the state of the Law, including draft amendments, at that date.