Creating A Budget

Canadian Living; Creating a Budget for Your Rent, Bills, and More

Canada's housing markets fluctuate, as do others on a global level. Renting has become a popular alternative to homeownership for several reasons, including, but not limited to foreclosures, downsizing, and an unstable economic climate that makes investors and potential homeowners shy away from buying.

With the increasing cost of living in Canada, many households are implementing strict spending budgets to make sure they can meet their monthly bills and live in a financially responsible manner.

Understanding What a Budget Is

A budget is the roadmap of your income and bills over an extended period of time and the allocation of funds made to monthly bills. A household budget may include line items such as:

  • Electric
  • Groceries
  • Water
  • Rent/Mortgage
  • Insurance
  • Phone/Internet/Cable
  • Credit Card Payments
  • Student Loans
  • Child Care
  • Etc.

Household budgets are very specific to the needs of those that live there; however, there are some universal elements that appear in all budgets, such as income, fixed expenses, and flexible expenses.

The following is one common budgeting equation:

Income - fixed expenses - discretionary expenses = net income left over for the time period (usually month).

Expenses Checklist

Millions of renters use at least half of their income to pay rent, leaving them with very little to cover remaining expenses. When this is the case, budgeting is critical to make sure that all bills are taken care of in a timely fashion. The following are a list of some of the basic income/expense categories that can be helpful when making a budget. Grab a pen and paper and read on.

Income

  • As long as you are working steady hours, income can be projected on a daily, weekly, monthly, or yearly basis.
  • It is important to budget your net pay, not your gross pay, as this does not factor in taxes and other paycheck deductions.
  • Make sure to keep pay stubs and bank statements as this will help when making your budget.

Expenses (Fixed)

Rent

  • Try to keep rent to no more than 30% of your income.
  • If you need to move but are having trouble coming up with a deposit, see if the landlord will let you pay in installments.
  • Keep in mind pet deposits (these are usually a one-time fee).

Renter's Insurance

  • Most landlords will require proof of renter's insurance. This is usually a low cost insurance that is paid once a month.

Gas/Electric

  • Gas is normally cheaper than electric (keep this in mind when apartment hunting).
  • Gas and/or electric is sometimes paid by the landlord, but in these cases rent is usually higher to cover the extra expenses of the landlord.

Water

  • This is a utility that is generally covered by the landlord.
  • If you have to pay for utilities, they should not account for more than 10% of your income.

Phone Service

  • Consider a bundle package if you are already paying for cable and internet service, this can save money.
  • You probably don't need both a home telephone and a cell phone.

Car Payments

  • Your car payment should not total more than 2-5% of your income.
  • Consider using public transportation if the area you live in offers a feasible option.

Parking Fees

  • If you live in a larger city or an apartment complex you are likely to be charged an additional fee for parking.

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Student Loans

  • Try to consolidate student loans to lower payments.
  • Try to set up an income contingent plan if you cannot afford your loans.
  • See if your student loan provider offers automatic withdrawals, this can reduce your payments by about 2%.

Fuel

  • Carpool or use public transportation to cut down on fuel costs.

Food

  • Make sure you stick to a predetermined list to avoid impulse buys.
  • Use coupons (this can save a considerable amount of money on food).

Once you have determined your budget, and added up all your expenses, all you need to do is minus your expenses from your income to retrieve your balance. This balance can be put into savings or used to pay down debt or for any other number of uses.

 

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