An easy guide to creating a budget by percentage of income!
Ever wonder how much of your income actually goes towards paying for your accommodation, groceries, transportation and other sundry expenses every month? Did you know that spending $2.50 on a coffee and bagel each day could cost you up to $900 per year?
That’s why it’s important to make a budget for each month as it puts you in control of your spending and saving. If you are a first timer, the very thought of creating a budget for monthly expenses can be daunting.
Here are some basic guidelines to help you create a budget by percentage of income and figure out the right budget percentages and a starting point. Remember that based on your individual living style, income, family circumstances, and location, the allocation may vary from person to person.
Rent or Mortgage
Your accommodation easily takes the biggest chunk off your budget. If you can be close to 25% of your income-that’s the goal!
You can budget anywhere from 5–10% of your income for household utilities such as water, lights and electricity.
This varies and primarily depends on the size of your family, your location and your dietary restrictions. If you’re developing your first budget, start by allocating 10–15% of your budget to food and you can make adjustments from there.
This category depends on a combination of your location, your commute to your workplace and whether you use public transportation or your own car. You could start by budgeting 10–15% of your monthly income here and adjust as needed.
While healthcare is generally free in Canada, health supplies aren’t. That’s why we recommend allocating 5–10% of your budget to health expenses.
Insurance coverage is definitely recommended especially if you need to cover multiple family members and their assets like cars and a home. You can set aside 10–25% of your income for insurance.
It’s a good rule of thumb to allot 10–15% of your monthly take-home pay for things like entertainment, a visit to the salon or wardrobe shopping, depending on your lifestyle choices.
It is important to save and to put aside funds for emergencies and future asset building. You can gradually build up your emergency savings by setting aside 10–15% of your income each month.
Debts, if any
If you are carrying debt, a simple guideline is that no more than 10% of your income should be used to service that debt. If you are spending more than that, you may be putting other expenses in jeopardy. If you have debt, you’ll want to create your budget so you are able to pay it off as quickly as possible. That means you want to mix and match your budget percentages to create room for more money to go toward your debt payments.
Keep in mind that these budget percentages are guidelines to help you get going. What does matter is that you are at least making a plan to control your money. Here is a useful reference from the Government of Canada that offers more resources on:
• Why make a budget
• Considerations before you start a budget
• Tips to help you make a budget
• Tips to help you stick to your budget
Ready to embark on setting up your budget? If you need help with achieving your financial goals, you can speak to one of our trained credit counsellors by calling us at 1-844-402-3073 or get started with our online debt analysis.
Ready to enjoy debt freedom? Give us a call at 1-844-402-3073 to speak to a trained credit counsellor today!