How Much Money to Spend on Living Expenses
Most Canadians wonder how much of their income should be spent on groceries, home, clothes, vehicles, and more. If you are in that category, you now have the opportunity to learn more about budgeting, how to create a budget, and how it can help you develop positive spending habits. Everyone makes a unique amount of income and has a unique set of needs. So, your colleague’s budget is different from yours.
Once you learn the basic concept of budget, it is time to develop a budget. Start with your net income. This is the amount of money left after tax and other relevant deductions from your paycheck, but before any voluntary deduction such as pensions, RRSPs, and other forms of savings. Assuming you have costs such as high debt payments, education-related expenses, and childcare costs, you may want to lower your expenditure on other less-urgent issues and address these high costs.
Budgeting Guidelines: Costs of Living by Category
The Easiest Way to Use the Guidelines
To make your budgeting process easier, we have created easy-to-understand budgeting guidelines. York Credit financial Services shares these guidelines for free to help Canadians battling with budgeting and financial issues to create a custom budget and regain control of their finances. Suppose you are not sure how to track your living expenses and calculate other aspects of your daily expenditure when budgeting. In that case, it is crucial to seek guidance from one of our experienced budgeting experts. Remember, a budget is like your spending plan. If that plan has flaws, there’s a chance it will not be helpful in terms of personal finance management.
Basically, you need to divide your expenditure into different categories based on the guidelines we have issued. These guidelines make it easier for you to determine whether your current living expenses exceed what you should be spending for each category. Besides, you will be in a position to determine the recommended expenditures for each category and adjust your expenditure accordingly. This tool shows you the details of your budget in a pie chart that is divided into different expense categories. There’s also a budgeting calculator that gives you helpful tips and suggestions so that you can avoid the common pitfalls of a budgeting process.
How to Create a Budget With Irregular Income
Suppose your income changes frequently from month to month or every few months. In that case, creating a reliable budget with irregular income can be difficult. Try using specific strategies (we have shared) for developing a personal budget for irregular income. These strategies will offer you simple but reliable ways to ensure that you’re not spending unnecessarily in the months you have a higher income.
Effective budgeting will also ensure that you have enough money even during those months when you do not get a high income. If you prefer watching videos rather than reading text, consider learning how to budget or create a financial plan in our free online workshops. Alternatively, you can schedule a consultation session with one of our budgeting experts. This will help you learn how to create a custom budget for the low-income months and the high-income months.
3 Budgeting Strategies When You Have Irregular, Seasonal or Fluctuating Income
1. Budget Using Your Average Income
Suppose you have been making irregular income for several years. In that case, an effective strategy to determine the average net income you have been earning for each month in a year is to divide the total net income by 12. This will give you your current monthly budget limit. If this amount of money is insufficient to meet your expenses, it is recommended to supplement and increase your income regularly or decrease your expenditure to establish a budget balance. An essential part of the budgeting process for self-employed people is to include separate savings account for your income tax payment. This will make it easier to track your expenditure and income.
2. Budget Using a Holding Account – This Method Works Well for Students
Another reliable strategy involves setting up a holding account. Your total net income, including bonuses, gifts, student loans, tax refunds, and more, will be deposited into your holding account. In this case, you will pay yourself a specific monthly amount based on what you have determined you can afford and what will let you meet your financial obligations successfully. During the months you have a high income, your holding account is likely to have a larger balance. During the lean months, your holding account balance will be low. However, the specific amount you pay yourself doesn’t vary from month to month.
A Special Budgeting Note for Students
The holding account method is the easiest for post-secondary students trying to budget with a lump sum amount of money. With a grant, student loan, bursary, money saved up from working during the summer holiday, or scholarships, it can be easy to spend all of it at once. Using a holding account and taking a simple paycheck every two weeks makes it much easier to budget your money effectively and ensure it lasts for as long as you need it to.
3. Use Two Budgets: One for Good Times & Another for Leaner Times
Another way of dealing with irregular income is to create two budgets—one budget for the high-income month and the other for low-income months. For many Canadians, this is the most challenging way to manage their money effectively. This is because it is easy to get into bad spending habits during the high-income months and probably feel deprived during the low-income months. With two different budgets, some Canadians are tempted to spend more money just because they expect to have money again during the high-income month ahead. They tend to rely on credit services to supplement their low income, and this may result in a cycle of debt and questionable spending habits that could be expensive and challenging to break.
Determine how much you need for key expenses
Suppose you spend all your income on whatever you like. In that case, you will not be prepared for future financial obligations. It is in your best interest to begin with 20 percent for savings and debt repayment. You can pay yourself first by setting aside enough money for an emergency fund and a retirement plan—next budget for your debts. For instance, if you have an outstanding credit card debt, work on repaying it gradually. Next, deduct your regular bills. If you make $5,000 monthly, try to spend half of that amount or less on utility, rent, and other essentials.
Make changes to your spending along the way
Your expenditure is guaranteed to fluctuate over time due to an increase in the cost of living in your town or relocation to a different geographical location. If you are short on funds at the end of every month, there is a good chance your current budget is not effective, and you should revisit your spending practices right away. Analyze your bank statements and credit card to determine your expenditure patterns. Do not forget the withdrawals you have been making.
One way of tracking your expenditure successfully is to keep all your receipts safely. This will help you determine how you spend money and where your cash may be leaking out of your current budget. Remember, having accurate income and expenditure information will help you create a more effective budget. The more honest you are when budgeting for your money, the better off you are likely to be.