Section 8 – Financial Planning and Portfolio Monitoring

Balance Sheet and Budget

Balance Sheet

To be able to assess your financial situation accurately, you need to establish and analyze your personal balance sheet.

To do so, list of your assets (house, cottage, cars, investments, etc.) and your liabilities (mortgage, line of credit, credit card balances, personal loan, etc.). Then, determine your net worth by subtracting the value of your liabilities from the value of your assets.

By comparing your current balance sheet to that of the previous year, you will determine the state of your situation. If your balance sheet has improved, try to identify the source of this improvement. Perhaps your assets increased in value or you have managed to significantly reduce your debt. Conversely, if your balance sheet has remained stable or declined, try to determine why so that you can control or fix it.

Analyzing your personal balance sheet reveals your annual financial progress and helps define strategies to grow assets and reduce liabilities to optimize savings planning.


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

Consumption Habits

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
Income tax

Systematic Saving

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.

Interest Expense

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:
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%.

Section 8 – Financial Planning and Portfolio Monitoring
Balance Sheet and Budget
News and Insights on Tax