Have you ever started to budget for everyday life and then got stumped about what to do next? We’ve all been there. Here’s some help to get you through.
Part of the problem is that there are so many factors that can shift and adjust depending on what we want to achieve in life. You may think that your question is simple at first, but it ends up getting really complex.
Don’t worry…you’re not the only one out there who has these questions. Here are the answers to three simple budgeting questions that Canadians often ask themselves:
Question 1: How much of my budget should I spend on my housing?
If you’re like most Canadian families, the single most costly expense for you will be shelter. That’s right, putting a roof over your head doesn’t come cheap these days. If you’re not careful, you can have too much of your income going towards covering your mortgage or rent. You could find yourself in a situation where you’re “house rich, cash poor,” with little money to save, let alone have fun.
So, just how much of your income should you have going towards shelter? Conventional wisdom would say you should aim for a maximum 30 per cent of your gross income going towards housing. However, if you live in a more expensive housing market, you could find that more income is going towards this category.
While 30 per cent is a good target to aim for, a housing upgrade or expensive new condo could make those costs skyrocket. At the maximum, you should aim to keep these overall costs below 50 per cent of your gross income — otherwise, you’ll barely have any money left over for other household expenses after you pay your mortgage or rent.
Question 2: How much of my budget should I spend on food?
On average, Canadians spend approximately $200 per month per person on food purchases in stores, according to Statistics Canada. This amount depends on several factors, including location and income. For example, big cities like Winnipeg tend to have a higher cost of living than small towns.
In spite of this, a good rule of thumb is to aim to spend no more than 10 to 15 per cent of your gross income on groceries. For example, if you’re earning $60,000 a year, you shouldn’t be spending more than $6,000 to $9,000 on groceries. In case you’re wondering, this figure includes toiletries and other items you buy at the supermarket.
Sure, this seems good in theory, but you might find those dollar amounts to be a bit low for an entire year, especially considering how expensive some grocery items can be. To keep your budget in check, consider shopping around to find common household items and cleaning products at the dollar store — or only when on sale. (Check those coupons, too!) When you find a good price on items with a longer shelf life, stock up and keep a supply on hand.
Save on fresh produce that’s in season by frequenting your local market, and in the off-season, keep an eye on those prices (avoid the high ones, and stock up on the low). Make use of your freezer year-round to have more tasty meals and snacks on hand — you might be surprised what you can freeze and store for later! And for more food savings tips, there’s even a book on eating for just $4 per day!
Question 3: How much of my budget should I be saving?
This is one of the ultimate questions, and the answer depends on your savings goals. (Read more about setting savings goals here.)
Common short-term and long-term goals include going on a family vacation, buying a new vehicle, putting a down payment on a home and preparing for retirement. How much you’ll need to put aside also depends on the time horizon and the amount you’ll need to save. For example, saving for a family vacation tends to have a shorter timeline than retirement, although it also tends to cost a lot less.
Generally speaking, you should aim to save between 10 and 15 per cent of your gross income. Although this may cut into your disposable income, it’s important to make savings a priority. Instead of treating savings as the last priority in your budget, treat it as a first priority by “paying yourself first.”
When you pay yourself first, the money you’d like to save is set aside in a separate savings account before you’re tempted to spend it. By having the money ‘out of sight,’ it may also be ‘out of mind,’ making it more likely for you to meet your savings goals.