We’ve been talking a lot about the importance of creating a personal monthly budget lately (in fact, download our free Budget Planner + Expense Tracker to get started if you don’t already have one). While having a budget helps you easily see how much money you have coming in and how much you've got going out, many people wonder how much they should be spending on various monthly expenses, such as home, transportation, groceries, and more. Here's the 411 on how much you should be spending in each category.
How much you should spend on different monthly expenses will change dramatically depending on your income, family situation, and even where you live, so use the following information as a basic guideline.
First things first: We're going to be working with the average Canadian salary, which is about $986 a week, or just over $51,000 a year. Again, this is just an average across all provinces. In Alberta, for example, the average Canadian makes close to $60K while in Prince Edward Island, the average salary is closer to $43K.
9 Common Monthly Expense Categories
Our free Budget Planner + Expense Tracker is broken down into four main spending categories: Housing, Living, Work and Personal expenses, and each of these categories have various subcategories.
Now, if we're working with the average Canadian salary, which is $986 per week, that works out to about $3,944 per month. But we need to pay taxes, so we need base our monthly budget on our net income, also known as take-home pay. So instead of having close to $4k to work with on a month-to-month basis, we actually only have about $3,150 for all of our monthly expenses. (This of course varies from province to province due to different provincial tax rates.)
Using the average percentages most experts agree on, here’s how your money should be spent each month.
At 35%, housing accounts for the bulk of monthly spending, averaging about $1,100 per month. This includes mortgage or rent, property taxes, insurance, and hydro. Depending on the city you live in, it could be very difficult (or impossible) to stay within this budget, so you can consider things like getting a roommate to lower your housing expenses, or supplementing your income by renting a room or floor in your home (if you own it) or AirBnB-ing your place.
About 15% of most people's budgets (or around $400 per month) goes to the food category. This includes groceries as well as personal care/household items purchased at the grocery store, like cleaners, toilet paper and shampoo.
How do you get around? Most people spend about $470 per month, or 15% of their budget, on car payments, insurance, fuel, maintenance, parking, transit passes, and taxi or Uber expenses.
Utilities, about 10% of most Canadians' monthly expenses at $315 per month, include everything from hydro and gas bills to cell phone, landline, cable and internet bills.
5. Debt Payments
Most people spend 10% of their monthly income on debt, or about $315 per month. This includes credit cards, payday loans, auto loans, student loans, and lines of credit.
6. Personal & Discretionary
Most Canadians spend about $160 per month, or 5% of their monthly budget, on personal and discretionary items. This includes haircuts and personal grooming, entertainment (like going to the movies or dining out), tobacco and alcohol, gaming, and hobbies.
No matter how much or how little you earn, you should always be squirreling away some of your monthly take-home pay for yourself. For most Canadians, this is about $160 per month, or roughly 5% of their monthly income. Paying off debt of course takes priority over short-term savings (like saving money for a vacation or a new phone) because of the interest it accrues. However, a long-term emergency savings fund is very important to establish, so you don't have to resort to using your credit cards or taking out a payday loan if an emergency ever arises, like an unexpected vet bill or job loss.
Most of us don't have enough time to go shopping every month (and that's a good thing), but averaging our spending throughout the year beings this category to 2.5%, or around $80 per month.
In Canada, we're lucky to have our healthcare system, but we still need to cover costs like dental work, glasses, and contact lenses; specialists like optometrists, physiotherapists, and chiropractors; and other over-the-counter medicines. This eats up another 2.5% of our monthly income, or about $80.
Categories Causing Canadian Debt
Determining debt isn't an exact science. For example, some people don't have a monthly car payment, so because they have fewer transportation expenses to worry about every month, they might spend more in another category, like housing or clothing.
Despite our best efforts, some spending categories can be real budget-killers—those areas where we’re simply spending too much. So here are a few suggestions on how to cut back on those budget-draining expenses.
One thing is for sure: Canadians love to eat! One of our favourite past times is dining out, which we all know can blow your budget into smithereens. But grocery shopping isn't too far off, either. The average Canadian household spent over $8,500 on just food in 2017. If you want to cut down on your grocery bill, embrace coupon-ing, price-matching, shopping at discount produce and grocery stores, purchasing less pre-packaged foods, and/or using a smartphone app that offers cash back on your favourite food items and grocery stores.
Personal and Discretionary
Personal and discretionary expenses, like grooming, entertainment and gym memberships can really add up, so instead of going out consider having a girls’ or guys’ night in, and doing free or close-to-free activities, like hiking, visiting museums, or seeing a local band. Also, if you smoke, quit. Besides the enormous health benefits, quitting smoking can yield huge financial gains too. If you smoke a pack a day at $11 a pop, that’s $330 a month.
There are a number of ways to cut these expenses down. For example, washing clothes or dishes after 7pm during weekdays or anytime during the weekend can save you money! Also turning the thermostat up or down (depending on the season) just a couple degrees, especially when you're not at home, can save you money month-over-month. Also consider things like caulking your windows, weatherstripping your doors, and topping off the insulation in your attic to save on your energy bills.
Did you know we only use about 20 per cent of our wardrobe? So why not cut your clothing budget to 20 per cent as well? Don't think it's possible? Try it for just a couple of months by visiting top-notch thrift stores and looking online for gently-used clothing and footwear. Especially when it comes to clothing you'll only wear once, like holiday party dresses or wedding attire, don't fork out the cash and buy secondhand instead. (Plus, if you're posting pictures on social media, you may not want to reuse an outfit.) You'll save a bundle.
Communications are costing Canadians over $2,200 annually, or about $180 per month. Cut this cost by negotiating a lower monthly plan with your provider or switching to a cheaper one, and purchasing gently-used cellphones instead of buying brand new. You can also cut down on your internet usage and avoid overage charges by using free wifi whenever possible.
While using a Budget Planner is a great step in gaining control of your finances, it also helps to know how much you should be spending. If you're finding it difficult to make ends meet, or just want some free financial advice on how to make your budget work better, contact us today and we'll set you up with a free counselling session with one of our expert credit counsellors.