It's Your Money  

Getting a clear picture of your current financial position is a good start

Live within your means

Learning to live within your means is one of the most essential life skills you truly need, but many Canadians fail to do so.

While most who are not living within their means have a number of (external) reasons to blame, at the end of the day, the onus is on you and nobody else to make that happen.

While not necessarily easy, following these six simple steps can help you get on the right track:

1. Know how much you earn—It’s very hard to determine how much you can afford to spend if you don’t know how much you make. To do this, you need to calculate your take home income net of taxes.

2. Determine your basic living expenses—These are costs to live that can’t be eliminated such as rent or your mortgage, groceries, transportation, etc. Yes, many of these costs can be lowered but you need a baseline to get started.

3. Then total up all other expenditures—After your basic costs of living, you need to determine where else you are spending money and how much. Things like dining out, vacations, shopping and entertainment will fall in here. Your monthly contributions towards debt repayment and investment savings should also be added in here. Every penny you spend in a year should fall into this or the above category.

4. Determine which of the above expenses are annual versus monthly—This will allow you to deduct all the annual expenses from your net income calculated in step 1 and see how much is left. You can then take that leftover number and divide it by 12 to see how much you can spend each month.

5. Calculate your monthly cash flow—Combine all the monthly expenses from No. 2 and No. 3 above, divide by 12 and compare that figure to the one you calculated in step No. 4. If you have $2,000 per month leftover after deducting annual expenses and your current monthly expenses total $2,400, you know that you’re living outside your means and need to make some adjustments.

6. Find areas to decrease spending—As stated above, the onus is on you and nobody else to make sure you live within your means. If you’ve followed the above steps, you will have a good idea of how much you bring in and what you are currently spending. No matter how hard it is to do, you need to make some cuts in order to not only “balance your books” but also ensure that you’ve got sufficient amounts going towards your debt repayments and retirement savings.

There are countless strategies to reducing your spending that you can consider including:

• Cutting down on monthly subscriptions that you don’t use or really need

• Re-negotiating service contracts for things like cell phones

• Reducing dining and entertainment spending

• Lowering housing costs by moving to a smaller place

• Embracing second-hand shopping versus buying everything new

If you feel stuck and don’t know where to start, a few quick Google searches will find countless budgeting apps and support services, including the Government of Canada’s managing your money website.

Regardless of how you get the process rolling, the sooner you can get started the sooner you can reduce your financial stress, live happier and ensure your future financial wellbeing.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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