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What Money-Savvy Kids? 5 Lessons to Set Them Up for Financial Success
As parents, it can be overwhelming to think about everything we need to teach our kids — whether it’s showing them how to cross the street safely, introducing them to the alphabet or teaching them to ride a bike. Unfortunately, money still seems to be a taboo educational topic — even among families. Teaching your kids about money lessons is essential for raising adults who are comfortable talking about and handling their finances. By following these tips, you can create a solid financial foundation for your kids.

1. Talk About Family Finances
We’re not suggesting that you study your financial spreadsheets with your kids for a family fun night, but your children can’t get comfortable talking about money until they know you’re comfortable talking about it. By setting up a consistent family budget meeting — you don’t have to call it that if the b-word scares/bores everyone — your gang can get in the habit of discussing topics like how much money it takes to keep your household functioning and why it’s important to plan for big purchases.

If kids get the opportunity to give their input — and no, they don’t get the deciding vote, even if they outnumber you — it will empower them to take responsibility for how the household spends its money. It can start with something simple like: We have $50 extra spending money this month. Would you rather go to a drive-in theater or save the money so that next month we could go on a camping trip?

2. Show Them Why Saving Pays
Your child’s method of saving will evolve as they get older but teaching the basic value of setting aside money will help them avoid the temptation to make an impulse buy each time they have money in their hands.

Use Real Dollars & Coins
Using physical cash and coins is great for helping younger children understand the concept, as it allows them to see how their nickels and dimes (and dollars) can really add up. You can start out by teaching kids to budget their money — consider using one piggy bank for savings, another for spending and a third for giving.

Open a Bank Account
When they’re ready, you can take the next step by opening a bank account for your child. Many banks have accounts specifically for minors if their parents also bank there, which can help your children save on fees that banks may charge for regular accounts.

By bringing them along to a physical location to open their bank account, you’ll help your kids become more comfortable dealing with financial tools and institutions. That way, banks won’t seem as intimidating when your kids open their own accounts as adults.

Teach Them About Compound Interest
Additionally, use their savings accounts as an opportunity to teach kids about compound interest — a basic financial concept that explains how your money can grow by earning interest on the interest.

3. Let Them Learn the Value of Their Money
Getting your children to value their money can give them a head start on money management skills. It starts with understanding where the money comes from (the ATM doesn’t count). Whether you pay them an allowance, they receive money as gifts from relatives or they’re making their own money (yes, even a lemonade stand business counts), your children will better understand how much a dollar is worth if they learn how to budget their money early on. Accounting for each dollar allows a child to learn decision-making skills that will prepare them for later in life when they’re parcelling out their paycheck.

Ask them questions like: Is it worth doing an extra chore to have their pick in the candy aisle at the grocery store? By giving them the power to make that decision, your children will be able to apply the same money concepts when deciding as an adult whether it’s worth working an extra shift to buy those new shoes or taking on a side gig to pay to build an emergency fund.

4. Don’t Let Investing Be Only for the Rich
Your kids don’t need to become the next Warren Buffett to learn the value of investing. And they don’t need to be rich to start (and neither do you). No matter what their age, kids can learn about growing wealth by investing a small portion of their money. We recommend starting with a very small amount since there is, of course, a risk that their investment could lose value. It’s a tough lesson, but one that’s easier to accept if your child lost a week’s allowance rather than a lifetime savings.

And investing doesn’t require a large cash outlay to start, especially if you work with a brokerage that allows you to open a custodial account and invest in fractional shares. For just a few dollars, your kids can pick a couple of companies that make their favorite toys or movies, then check the stock price each week to see how their investment is faring. If your family is the competitive type, let every member invest in a different stock and see whose stock grew the most at the end of a year.

5. Don’t Make Debt a Four-Letter Word
You want to protect your kids from all the bad things, so if you don’t talk about debt, they won’t end up in it, right? Maybe. But probably not. Giving them the tools to understand debt is a better way to avoid bad debt and responsibly handle the good debt that they’ll face in their lifetime.

Differentiate Good Debt vs. Bad Debt
So how can you teach kids the difference between bad and good debt? Remember these two factors:
- What’s the interest rate?
- What’s the value of the item they’re going into debt for?
As a general rule, if you’re borrowing money at a higher rate than you can earn by investing, that’s bad. For example, if a credit card charges 18% interest, you can’t reasonably expect to get those kinds of returns on investments, so that’s a bad debt. However, if you get a mortgage with a 3% interest rate, there’s a good chance you could invest that money and make more in interest.

It’s also important to teach kids that bad debt vs. good debt involves the types of things and events that they’d want to use the credit for. Borrowing money to buy a candy bar? Bad debt. Borrowing money to invest in a mower so you can start making money cutting the neighbor’s lawns? Good debt (since they’ll in theory be using that borrowed money to make more money).

Get Real About Student Loans
One of the biggest decisions kids will have to make early on in regard to debt is whether to take out student loans. Start talking to your teens early about how student loan debt could affect their lives after college. Although it can be a very personal decision, encourage them to consider the costs and benefits of student loan debt. For instance, is the private, out-of-state school with the gorgeous campus worth the debt burden if they’re getting an education degree? Teaching your kids early about how to use debt and credit lines responsibly — perhaps by adding them as an authorized user — will let them see the benefits of building a solid financial foundation.

Start Small
And if all this is a little much for your youngest kids to understand, you can introduce this money lesson with one of these debt free charts. Start by deciding on a bigger purchase your child wants but doesn’t have enough cash for yet — but small enough that they can “pay it off” in a few weeks or months. Each time they make a “payment” to you, they can color in another section of the chart. By the end, they’ll have a better understanding of what it means to pay off debt, and you’ll have another piece of art to hang on the refrigerator. Win-win.
June 1, 2021
Where Does Your Paycheque Go?
10 Budgeting Tips to Help You Stay on Track

A monthly budget is like Google Maps for your finances: you follow it because you don’t know where you’re going without it. If you’re new to budgeting, don’t be discouraged by a few — or many — wrong turns and closed roads along the way. The longer you stick with it, the better you get. With a few simple budgeting tips, you can be well on your way before you know it.

1. Set Your Goals Before You Make Your Budget
Without a goal, a budget is just a spreadsheet that tells you to have less fun. Think about what you want in the next 5 to 10 years and figure out what financial situation you need to get there. Whatever your goals are, know that any sound financial foundation starts with an emergency fund. You might then want to pay off debt, save for a down payment on a home, or increase your savings.

Decide where you want to be financially next year and the year after. Knowing what you want to do with your money will guide you as you figure out how to budget, and it will greatly increase the likelihood that you’ll stick to it.

2. There’s No One Size-Fits-All Budget — Find a Plan That Works for You
There are so many budgeting methods out there, and every guru says theirs is the best. But ultimately you have to choose the one that works for you.

If you’ve got an ambitious goal, we recommend trying a zero-based budget first. To make a zero-based budget, start by prioritizing your expenses from essential to nonessential. Then, assign every dollar in your paycheck a “job” on the list until you run out. The most important things — housing, food, minimum debt payments — get taken care of first, and you can disburse the remaining money for your goals and fun in their order of importance to you. Zero-based budgeting is great for ‘Type A’ planners.

If you prefer to be a little more loosey-goosey, a 50/20/30 budget is a great option. With this approach, you don’t have to think too much about your expenses. You just allocate 50% of your income to your needs, 20% to savings and 30% to wants.

3. Use a Budget App or Envelope System to Track Your Spending
It’s hard to lug around your laptop or binder to keep up with each budget category, so a budgeting app is a great tool for updating your budget on the go. There are many out there, whether you like to enter each transaction manually or see everything updated automatically.

If your goal is to take an intense look at your spending, manually tracking your transactions is going to work best. Once you’ve been budgeting for a while and you’ve got a grasp on your spending, syncing transactions automatically works fine. If you still can’t stick to your budget, the envelope system can help you succeed without so much emphasis on constant tracking.

After you decide how much money goes toward each of your expenses, put the money you’ll spend for each expense in a given week into separate envelopes and carry them with you. Once an envelope is empty, you’re done spending in that category. You can keep receipts in the envelope and examine your purchases later.

Envelopes are best for categories you’re prone to overspending on. You probably don’t need envelopes for things like gas and utilities because you’re not likely to go on a gas-buying spree. Popular categories for envelopes are restaurants, groceries, clothes, and entertainment.

4. Use the Past to Predict Your Future Income & Expenses
Whether you choose a zero-based budget, 50/20/30 budget, or some other method, you’re going to have to calculate your income and the amount of money you want to put toward every category or individual expense.

Salaried employees will get off easy when they calculate their incomes. If you have a variable income or side hustles, you’ll need to do some digging. Look back at your income from the past six months, or as far back as you can if you’ve been at your current job for less time. Then find your average monthly income and the average amount of each paycheck.

Expenses like utilities can also be unpredictable. Check your online statements to see which months were higher versus which were lower so you can make future budgets. You may not be able to take that impromptu weekend getaway the month your electric bill will be $300, but it might be totally feasible during a month it’s going to be $75.

5. Don’t Confuse Infrequent Expenses with Emergencies
These aren’t the unexpected expenses that you’d cover with your miscellaneous or emergency categories. Infrequent expenses are the charges that come up once or twice a year — but we always seem to forget will happen. Like when it’s December 23 and you’re still not done with your holiday shopping. Who could’ve predicted Christmas would be on December 25 again?!

Keep a chart that includes your semi-annual and annual expenses to determine what you need to save every month to cover them. Open a separate checking account or savings account where you put money every month to cover these expenses.

6. Remember the Obvious: You Need to Spend Less
Count this among the budgeting tips no one wants to hear. Once the planning is done, it’s time for the hardest part: sticking to your plan. If you’re in the habit of spending more than you make, your first priority is to find ways to save money. We don’t mean you need to find better sales and clip more coupons. The most important thing you can do is buy and spend less.

Some of good tips to cut spending are:
- Make a meal plan and stick to your grocery list
- Prep meals on Sundays so you’re less likely to eat out during the week
- Treat yourself to a coffee once a week instead of daily or cut them out completely
- Opt for free events in your area instead of pricy activities or bars
- Try running and body-weight workouts instead of paying for a gym membership
There are countless ways to save money. Do everything you can to resist the temptation to make impulse purchases or spend beyond your budget. An easy way to do this: Leave your credit card at home and use cash envelopes or a debit card.

7. Use the 30-Day Rule to Stop Impulse Shopping
If you still need to curb impulse shopping, follow the 30-day rule: When you want to buy something that’s not in your budget, make note of the item in question for next month’s budget and revisit it in 30 days. If you still want it, you can consider buying it if you can afford it.

8. Negotiate Your Bills to Save Money
People often take for granted that what they’re paying for their phone, internet and insurance is what they have to pay. By contacting your providers to negotiate your bills, you could lower your bills once or twice every year.

9. Remember That Things Will Go Wrong
Student loans and credit cards aren’t paid off overnight. And the perfect budget isn’t made in a day. Things will change and go wrong. Impulse purchases will be made, and budgets will get obliterated by life’s little surprises. The most important tip for budgeting is to not give up. When things go wrong, alter your budget to compensate. Move money from one category to another, put less in savings, or try a side hustle to add some wiggle room. And know that sometimes you’ll find yourself ripping up the entire budget and starting again from scratch in the middle of the month. Eventually, you’ll get this whole budgeting thing down. But it’s going to start with some bumps in the road.

10. Have an Income-Sinking Fund for When Your Income is Lower
Living off tips, sales commissions or freelance work can make for a flexible lifestyle, but it also makes it hard to budget. When you have an inconsistent income, you can follow all the budgeting tips above, but having this additional category may help.

When you calculate your income and get your monthly average, compare it with your income each month throughout the year. In months you expect to make more than average, take the difference, and transfer it to your income-sinking fund. It’s a separate account where you put money you plan to take out in the near future for a specific purpose, such as supplementing your income on low-earning months. During months when you expect to make less, you can withdraw up to your monthly average to help with expenses.

The key to any good budget is consistency!
May 3, 2021
The Smart Way to Use Your Tax Refund

There’s at least one nice thing about doing your taxes: the possibility of getting a refund. According to figures from Revenue Canada, just over half of the nearly 25 million tax returns filed in 2019 received a refund, at an average amount of $1,670.

If you did receive a refund, you need to decide what to do with it. The temptation to spend your refund immediately can be strong. Who doesn’t want a vacation, a new car, or that kitchen renovation you’ve been hoping to start? However, it’s important to consider all your options, such as paying down debt or saving for the future.

Whether you’re beginning your career, starting a family, or saving for a down payment on a home, below are some suggestions about smart ways you can put your tax refund to use.

Pay Down Your Debt
According to a survey conducted by Global News at the end of 2019, the demographic with the most debt appears to be Generation X (loosely defined as people aged 35-54), who report an average debt of over $10,000, not including their mortgage. This includes credit card debt, which can carry interest rates nearing 20%. Monthly payments at such high rates can quickly eat a big hole into your budget.

The Financial Consumer Agency of Canada (FCAC) offers advice on how to manage your debt. It recommends paying off higher-interest debt first, such as payday loans and credit cards. This will help lower your interest costs and free up more money to reduce your overall debt.

The debate about whether you should invest your money or use it to pay down debt is strong and ongoing. This choice depends heavily on prevailing interest rates, the amount you owe, and your financial situation. Online calculators can be a great resource to help you decide whether paying down your debt is the right choice for you.

Save for Retirement
The internet is full of statistics about Canadians not saving enough for retirement. Government programs such as the Canada Pension Plan and Old Age Security will provide a basic income for many Canadians in retirement, but you need to consider your own retirement wants and needs in deciding how much more savings you need. The good news is that the earlier you start saving, the more your money could grow with the benefit of smart investment choices.

A Registered Retirement Savings Plan (RRSP) is the most well-known retirement savings option in Canada. It allows you to contribute money each year, while avoiding taxes on those contributions until you withdraw it later in life (hopefully at a lower tax rate). In fact, RRSP contributions can help increase the amount of money you receive as a tax refund.

Tax Free Savings Accounts (TFSA’s) are another great option for long-term savings, as any capital gains you accumulate inside a TFSA are not taxable. Luckily, there is no shortage of options when it comes to saving your money for retirement. Canada Life offers a range of saving and investing solutions, including mutual funds and more comprehensive retirement plans.

Start an Emergency Fund
There are several reasons to save beyond the long-term goal of retirement. The FCAC recommends Canadians set up an emergency fund to cover unexpected expenses, such as the loss of employment or a medical emergency. An emergency fund can be set up slowly, with small weekly contributions to a dedicated savings account. You can also use part of your tax refund to set up a base from which to build over time.

This process can also be applied to other savings goals, such as a wedding or a down payment on a new home. You can set aside a portion of your tax refund, and then make smaller contributions on a regular basis to meet your goal.

Save for a Child’s Education
If you are expecting a child, or are the parents of a recent newborn, you’ve probably thought at least in passing about the costs associated with their education. The average cost for a year of undergraduate tuition in Canada hit $6,571 in 2019, reports Statistics Canada. And tuition levels are widely expected to continue rising. Luckily, there are government programs to help you save money for your children, the most well-known is the Registered Education Savings Plan (RESP).

You can open an RESP as soon as your baby is born. The earlier you start saving, the more you can potentially grow your money by the time he or she is ready for post-secondary studies. The federal government will contribute up to $500 per year to any deposits you make into an RESP (based on a formula of matching your own contributions to the account at a rate of 20% annually). So if you’re putting in less than $2,500 each year (about $200 per month) to your child’s RESP you’re missing out on those government amounts.

April 1, 2021
How to Prepare for the Upcoming Tax Season

Many Canadians’ year-end tax prep may be a little different as 2020 draws to a close. Taking a close look at your personal balance sheet before December 31 is a routine exercise that can help you make the most of your savings, reduce your tax bill and boost your tax refund in the new year. But a slew of pandemic-linked emergency benefits and relief measures this year means there may be some additional financial housekeeping you need to do this time. Here are some tips to make sure you start off the 2021 tax season on the right foot:

Paying Taxes on Your Emergency Benefits
The first round of emergency benefits Ottawa rolled out during the pandemic did not have any tax withheld at source. If you received either the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), you’ll have to include 100% of those payments in your 2020 tax return. The government will send you a T4A tax reporting slip for 2020 showing the total amount you report.

How much tax you’ll actually end up paying depends on your overall income for 2020. For example, if you made $27,000 from work in 2020 and received $8,000 worth of CERB, your taxable income for the year would be $35,000. Both the income you received from CERB and your job would be taxed in the same way.

You May or May Not Have to Pay Taxes
“If you’re under $12,000 in total income for the year, you don’t have to worry about any income taxes next year,” says Frank Fazzari, a chartered professional accountant at Fazzari & Partners. With the second round of COVID-19 benefits that became available in September—the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB)—the government is withholding 10% in taxes at source.

This, however, may be insufficient to cover your tax liability, Jamie Golombek, managing director of Tax and Estate Planning with CIBC Private Wealth Management. In addition, when it comes to the CRB, you may have to pay money back if your additional income for 2020 is more than $38,000. The claw back rate is $0.50 for each dollar of CRB received for net income over this amount. If you’ve received either round of benefits you may want to set aside some funds to cover any taxes or payments, you may owe come tax season next April.

Repaying Emergency Benefits You Don’t Qualify For
If you have to repay any COVID-19 benefits you didn’t qualify for, it would be best to return the funds by the end of the year. There is no obligation to return the payments by the end of the year. But repaying after December 31 means the amounts will show up on your T4A for 2020 and you may have to pay taxes on them. If you end up paying taxes on money you return, the CRA will eventually make you whole but you may have to wait until you file your 2021 tax return in the spring of 2022 until that happens. The process is based on general tax rules in the Income Tax Act that apply to repayments of taxable income.

The Simplified Home Office Deduction
If you’re one of the 2.4 million Canadians who’ve been working from your couch, the kitchen table or the kids’ bedroom this year because of COVID-19, you’ll likely be able to claim some home-office costs on your 2020 tax return without having to sift through receipts or ask your employers to fill out forms.

If you’re an employee who’s been toiling at home more than 50% of the time over at least four consecutive weeks in 2020 due to COVID-19, you’ll be able to claim a deduction of $2 for every work-from-home day up to a maximum of $400. This is what the CRA is calling a temporary flat-rate method of calculating the home office deduction. If you’re an employee with significant home office expenses, you can use the current “detailed method” of calculating the home office tax break, the CRA has said.

TFSA Withdrawals
There are no COVID-19 rule changes affecting tax-free savings accounts, but many Canadians have ramped up their contributions this year, according to a recent study from BMO. While a smaller percentage of Canadians was able to put as much money as they had planned into a TFSA this year, those who did were able to save up a little extra, the data suggests. Overall contributions were up 9.5% year over year.

If you’re planning to draw down on some of your TFSA savings soon, you may want to do so before the end of the year. Whenever you take money out of a TFSA, an equivalent amount of TFSA contribution room frees up in your account—but that doesn’t happen until the following calendar year.

RRIF Withdrawals
If you turned 71 in 2020, you have until December 31 to convert your registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) or registered annuity—that’s standard. If you already have an RRIF, though, remember Ottawa reduced the required minimum withdrawal for 2020 by 25%.

One-time COVID-19 Payment for Persons with Disabilities
Ottawa has also established a one-time, non-taxable payment of up to $600 for persons living with disabilities to help soften the impact of extra expenses caused by the pandemic. Being eligible and applying for the disability tax credit is one of the qualifying criteria to receive the payment. If you haven’t applied for the DTC yet, you’re still in time. Ottawa moved the application deadline from September 25 to December 31.

Charitable Donations
Charitable donations are especially important in a year that has seen jobless numbers skyrocket, domestic violence spikes, and marginalized communities struggle disproportionately with the impact of COVID-19. Both the federal and provincial governments offer donation tax credits that, when combined, can result in tax savings of around 50% of the value of your gift in 2020, depending on where you live. From the federal government alone, Canadians get a tax credit of 15% credit on the first $200 of charitable donations and 29% on anything beyond that amount.

January 4, 2021
Start an Emergency Fund

We never know what the future holds for us, so it’s always best to be prepared. Having an emergency fund is extremely important so you’re always prepared to deal with what life brings—good or bad. It’s a good idea to make an emergency fund one of your highest savings priorities. Put $20 a week in an emergency fund and your account will grow to over $1,000 in just one year. That’s often enough to cover a repair bill or emergency travel. An emergency fund can also shield you from the high cost of borrowing and keep you from sinking into debt. Follow these five tips to help you set goals and take steps toward starting an emergency fund:

Chart your monthly income & expenses. Grab a piece of paper and write down how much money your earn and how much you spend for each month. Be sure to include recurring expenses such as your rent or mortgage, utility bills, childcare, and estimates of other out-of-pocket expenses for things you might buy such as movie tickets, dinner out and clothing.

Set your emergency savings goal. An emergency fund should cover three to six months’ worth of realistic living expenses. If you feel your income is stable or have access to home equity or other forms of credit to use if needed, then you may be able to plan for the lower figure. If your credit is near its limit and your income outlook is less secure, you might want to save more.

Develop a plan to start saving. Setting a goal and developing a plan to achieve those goals go hand-in-hand. Part of your plan may include specific and measurable targets to work toward. For example, one specific goal may be to save an extra $300 over the next six months to put into an emergency fund.

Put your emergency fund in an accessible place. The best place for your emergency fund is in a liquid account (accounts where your cash is easily accessible). A liquid account might be a regular savings account at a bank or credit union that provides some return on your deposit and from which your funds can be withdrawn at any time without penalty. If you consider other options, like a certificate of deposit, money market fund or mutual fund, be sure to figure out how accessible your money will be in an emergency.

Stick to your plan. Once you’ve created your plan, make sure you stick to it. This can sometimes be the hardest part of saving for an emergency fund or any financial goal in general. If your goals are realistic and attainable, sticking to the plan will be much easier. A good way to stay on track is to save automatically. Set up a systematic transfer from your regular checking or savings account at your bank. Be sure to keep your rainy-day funds separate from your other accounts, and label it “for emergency use only.” Just writing down an account’s purpose can keep you from spending the money for any other reason.

Starting an emergency fund is a necessary building block for long term financial stability. Anyone can do it; you just need the right plan.

June 1, 2020
Before Spending Your Emergency Fund, Ask Yourself These Questions

We get so used to thinking of our emergency fund as cash we shouldn’t touch. It can feel wrong to actually spend that money. But the financial situation that’s cropped up as a result of the COVID-19 pandemic makes now a perfectly legit time to tap into your reserves. Honestly.

Your individual circumstance, however, may leave you questioning whether it’s really okay to be spending your emergency fund. Maybe you have a spouse who is still working or enough money in the bank to stretch a few weeks longer.

Here are four questions to ask before spending your emergency cash:

Is this expense a need?
This is a pretty obvious question but one that’s vital to consider. When you use your emergency fund to replace lost income, you can’t spend like you used to. Ask yourself: Is this expense necessary for my survival? If not, it’s not worth draining your rainy-day fund for. That may mean pausing your cable service or taking a break from tithing so you can eat, stay healthy and keep a roof over your head.

Are there resources to help with this expense?
In response to this financial crisis, various organizations and companies are providing assistance to those in need. Banks are waiving overdraft fees and adjusting payment plans on loans. Many credit card and mortgage companies are letting customers defer payments. Food banks are trying to distribute more food. Utility companies are vowing not to shut off service for those who can’t pay. Any assistance you’re able to get will help stretch the money in your emergency fund.

Do I have cash outside of my emergency fund?
Before you start spending your emergency fund, look at other money you can use first. If you have money saved up for a summer vacation or holiday gifts, use that cash. If you have more money than usual left in your checking account because social distancing eliminated your entertainment spending, spend that. Hold off on using your emergency fund until you’ve exhausted other viable options. Avoid pulling money from your retirement accounts.

Can I get what I need for less money?
Your emergency fund will only stretch so far. Be smart about what you spend by looking for cheaper alternatives. Buy store-brand products instead of name-brand to save money on groceries or shop at a store that offers lower prices. Even if those aren’t your normal habits, think of them as a temporary belt-tightening. Reduce your utility usage to help lower your bills.

April 1, 2020
Before You Make a Budget
You’re ready to start a budget — awesome! You’re probably feeling excited and ready to get your money in order. But here’s the thing: It’s super easy to give up on budgets. They can get complicated and require some maintenance. So before creating your budget, take these simple steps to set yourself up for success:

1. Track Your Spending

Sometimes it feels like each paycheck disappears into thin air. The money lands in your account, you revel in your balance for one day, then you pay your monthly bills and it’s gone!

That’s why it’s so important to track your spending. Before you even start a budget, you’ll want to get a clear idea of where all your money is going each month. There are plenty of ways to do this: good old-fashioned check book balancing, pen and paper or checking your accounts each day. Get yourself used to keeping tabs on your spending by using an app like Mint.com. This will help you better understand what your fixed expenses are each month and where you might be overspending.

2. Set Yourself a Few Fun Goals

Because budgeting can quickly become a dreaded chore, you’ll want to set yourself a few goals to keep you encouraged. No, these don’t all have to be boring financial goals, like paying off student loans or starting an emergency savings. Although those are great, work at a fun goal, like a road trip or cruise. Then, hold yourself accountable by setting up a separate savings accounts and have money automatically come out of your chequing account. You probably won’t even miss that small amount each week, but over time, it will contribute to your goal.

3. Bundle Your Debt Into One Bill

One of the trickiest parts about budgeting is keeping tabs on all your monthly payments, especially if you have debt. Rather than making four different credit card payments each month and logging them in your budget, make life easier for yourself by combining them under one umbrella. It will be much easier to budget with one, easy-to-manage monthly payment.

4. Find Easy Ways to Cut Back Big Bills

Building a budget will force you to take a good hard look at your monthly expenses. Ask yourself: Am I paying too much for any of these non-negotiables? The answer: Probably. Start with a bill that’s super easy to cut — car insurance. Yeah, there’s no getting around it, unfortunately. But to get the best deal, you’ll want to compare rates twice a year. Sometimes you get complacent paying your bills, but there’s usually ways to save or haggle for a lower price. Cable/internet is another good example, if you call, chances are there’s some kind of promo they can offer.

5. Pick Your Go-To Budgeting Method

Yes, there are budgeting methods — plural — but before you panic, we recommend using the 50/20/30 budgeting method for its simplicity.

Here’s how it works:
- 50% of your income goes toward essentials
- 20% goes toward financial goals
- 30% goes toward personal spending
Of course, you’ll want to play around with this, but keeping these base-line percentages in mind will help you figure out how to allot your money for the month.
September 3, 2019
How to Create a Budget
A budget is a plan, an outline of your future income and expenses that you can use as a guideline for spending and saving. Only 47% of Canadians use a budget to plan their spending. But Canadians are feeling more in debt than ever with 90% saying they have more debt today than five years ago. A budget can help you pay your bills on time, cover unexpected emergencies, and reach your financial goals — now and in the future. Most of the information you need is already at your fingertips and the guidelines below will show you how to create a budget.

Setting Up a Monthly Budget

It’s a good exercise to document your own actual spending habits for a month or two, and then compare them to this model. This can be a quick way to find out if you are overspending in certain areas.

STEP 1: Calculate Your Income
To set a monthly budget, you need to determine how much income you have. Make sure you include all sources of income such as salaries, interest, pension, and any other income sources, including a spouse’s income if you’re married. Determine your pay after deductions, and then use the following chart to help figure out what your monthly take-home pay is:
- Weekly cheques, multiply by 4.333
- Every-two-week cheques, multiply by 2.167
- Twice-a-month cheques, multiply by 2
- Irregular annual income, divide the net total by 12
You also want to make sure you add in other sources of income, such as interest income, spousal support, child support, tenant rent, and other payments. As with your pay cheques, determine a monthly average for these streams. Using the downloadable Budget Worksheet, write a dollar figure next to each relevant income source. Make sure that the figure you write down is the amount you receive from each income source on a monthly basis.

STEP 2: Estimate Your Expenses
The best way to do this is to keep track of how much you spend each month. The first step is to sum up just where (and how much) you think you are spending. The Expense Worksheet divides spending into fixed and flexible expenses. If some of your expenses for one or more category change significantly each month, take a three-month average for your total. As for the other categories, you might prefer to split them into more narrow subgroups separating food, clothing, and entertainment, for example.

STEP 3: Figure Out the Difference
Once you’ve totalled up your monthly income and your monthly expenses, subtract the expense total from the income total to get the difference. A positive number indicates that you’re spending less than you earn – congratulations! A negative number indicates that your expenses are greater than your income and gives you an idea of where you need to trim expenses and by how much.

Well done! You’ve created a budget. The next step is to make adjustments to this outline in order to achieve your financial goals. Track your budget over time to make sure you’re on track. You need to start making records of your actual income and expenses. This information will help you to understand any “budget variances” – the difference between the amount you planned to spend in a certain category, and the amount you actually spent. Prepare to be surprised for the first couple of months. You may not need to track your spending indefinitely. Usually, a couple of months are all you need to get an idea of where your money is going.

Helpful Tip

The 50/20/30 Rule
When creating a budget, you can list each and every monthly expense you incur as its own line item, or you can combine some of your expenses and follow what’s known as the 50/20/30 rule. The benefit of the 50/20/30 rule is that it groups certain expenses together to make your budget easier to track. The 50/20/30 rule splits your living expenses into three main categories:
1. Fixed costs that stay the same month after month, such as your mortgage, car payment, and cable bill, should take up 50% of your income.
2. Variable costs that can change from month to month, such as entertainment, groceries, and clothing, should take up 30% of your income.
3. Savings, which should take up 20% of your income.
The 50/20/30 rule allows you to retain some flexibility in your budget while saving a nice percentage of your income. While you can always adjust these percentages to accommodate your circumstances, limiting your fixed costs to 50% of your income should leave you with enough money left over to save and cover your variable expenses. Along these lines, allocating 30% of your income to variable costs means you’ll have a decent amount of wiggle room within that category alone.
May 1, 2017