BUDGETING, BANKING AND
SAVING
BUDGETING
Why have a budget?
It may cost more to get started in Canada than you
expected. Although Canadian salaries are relatively
high, so are costs. A budget, which is a personal or
family plan to manage your money, can help you plan
your expenses until your next pay cheque. Careful budgeting
will help you avoid borrowing money, which you will
have to repay plus interest.
How do you draw up a budget?
First, establish what you earn in terms of take-home
pay. Then look at what you spend. The spending side
of your budget divides into three general areas:
- taxes and other items that you must pay;
- necessary expenses such as food, shelter, clothing
and transportation; and
- luxuries.
How much is your take-home pay?
Your take-home pay is what is left after you've paid
such things as:
- income taxes;
- Canada Pension Plan or Quebec Pension Plan;
- Employment insurance;
- Union dues;
- Retirement or pension plan; and
- Any other monthly deductions from your pay cheque.
Depending on your total income, these compulsory items
can take about 25 to 35 percent of your total income.
If you are self-employed, you might want to put about
30 percent of your income in a separate account for
taxes and savings for retirement.
The important thing is to plan your budget based on
your take-home pay, not your pay before taxes and deductions.
How much should you spend on necessities?
Write down the cost of necessities - things you are
certain to need. The most important of these are:
- Shelter - a place to live;
- Heating and utilities;
- Food;
- Clothing; and
- Transportation.
You can economize on necessities - live in cheaper
housing, buy food economically, choose clothes with
care, walk, ride a bicycle or take the bus rather than
take a car or taxi - but you can't live without them.
You may find at first that necessities take up as much
as two-thirds of your budget.
How much should you spend on luxuries?
Luxuries are the items you can get with the money left
after you pay for the necessities. Most people have
to choose very carefully how they spend that money.
For example, if you must set aside money for education
or medical care, there will be less for items such as
a car, gifts or long distance telephone calls.
How does the income tax system affect you?
Both federal and provincial taxes are normally deducted
from your pay cheque by your employer. Each year, on
an income tax return, you list your income, deductions
and tax credits in order to calculate the taxes that
must be paid. If you have already paid more than you
owe, you may be eligible for a refund.
Also, by completing the tax return, you give the federal
government the information needed to determine if you
are qualified to receive the Child Tax Benefit and the
Goods and Services Tax (GST) credit. (See Fact Sheet
no. 4, Health and Income Security.)
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