May 26, 2014

By Margaret H. Johnson

The Canadian Centre for Policy Alternatives have recently published a new article on how much a living wage is for Vancouverites and other British Columbians. According to this report both parents need to be working and making at least $20.10 per hour for Metro Vancouver — or $36,582 annually for each parent working full-time. That’s $73.170 net income a year.

Statistics Canada has been publishing figures for what Canadians ‘spend’ their money on for many years and it just so happens that the 2012 amount for the average Canadian is $75,443.   Very similar or is it a good guess? I used to think that $75,443 was a bit high because so many of the individuals and families I see make so much less.

The bare bones monthly family budget as reported by the Canadian Centre for Policy Alternatives is as follows:

FOOD $775
CLOTHING AND FOOTWEAR $195
SHELTER $1,490
TRANSPORTATION $486
CHILD CARE $1,242
MEDICAL SERVICES PLAN $138
NON-MSP HEALTH CARE $136
PARENTS’ EDUCATION $89
CONTINGENCY FUND $235
OTHER HOUSEHOLD EXPENSES $731
Monthly Total $5,517
 

Unfortunately, the above budget, although drafted with good intentions, leaves many unanswered questions. Essential details are missing. We need to know the family size, how many children, the ages of the children. (for child care expenses) etc.

The rent comes in at 27% of the total net income. That goes against the trend I see. Rent or mortgages/strata fees/property taxes gobble up much more of the family income. It’s closer to 40% or more of the net family income.

I personally do not know anyone who has a contingency fund or a category of other that spends $731 per month. The Stats Canada household expenditure budget gives a much better breakdown of what people spend their money on.

Average household expenditure, by province
(Canada)
  2011 2012
  $
Total expenditures 73,457 75,443
Total current consumption 55,151 56,279
Food expenditures 7,795 7,739
Shelter 15,198 15,811
Principal accommodation 13,991 14,373
Other accommodation 1,208 1,438
Household operation 4,135 4,111
Household furnishings and equipment 2,027 2,183
Clothing and accessories 3,360 3,461
Transportation 11,229 11,216
Health care 2,211 2,285
Personal care 1,082 1,194
Recreation 3,711 3,773
Education 1,216 1,386
Reading materials and other printed matter 221 214
Tobacco products and alcoholic beverages 1,199 1,274
Games of chance 166 202
Miscellaneous expenditures 1,602 1,430
Income taxes 12,442 13,060
Personal insurance payments and pension contributions 4,191 4,272
Gifts of money, alimony and contributions to charity 1,673 1,831
     

I’ve always appreciated the government’s recognition of the games of chance category and the list.

However, we know nothing about the incomes, the assets, the debts, the family size, ages, the geographic regions and so on. They are simply statistical averages. For example, when you examine the percentage that housing commands with respect to the total amount spent, then you might wonder who they are talking about. Housing at 21% does not reflect most middle and lower income expenses – and that of seniors on limited incomes. There is no category for child care – a huge expense for working families. A third irrefutable example – there is no mention whatsoever of any creditors anywhere? It’s as if no-one spends any money on car payments, lines of credit or credit cards – or owes the $417 billion owing by Canadians in consumer debt.

The Centre for Policy Alternatives does get it right when they remark that families who work for low wages face impossible choices — “The result can be spiralling debt, constant anxiety and long-term health problems. In many cases it means that the adults in the family are working long hours, often at two or three jobs, just to pay for basic necessities. They have little time to spend with their family, much less to help their children with school work or to participate in community activities.”

One of the problems with setting up a budget is the sad reality that people already owe money to somebody. In other words, they have debt obligations. This restricts their ability to do what they want with their money. More often than not it’s a car payment and the car insurance amortized over 12 months that drain the discretion out of planning how to spend your money. Often the budget begins with shortages – not enough money for the basics (food, rent/mortgage, clothing, entertainment etc.) which fuel the temptation to use credit cards and lines of credit to top up the shortages. And then there is inflation.

I had mentioned a little while ago that it’s costing me over $60 to fill up my vehicle when it used to be $40-$45.00. Now we are seeing smaller sizes for food items like bacon that disguise the inflationary increase of the food prices. As reported on CBC yesterday, “But instead of charging customers more, some food companies have quietly reduced the weight of bacon packs while keeping prices unchanged.” Now a 375 gram package of bacon costs the same as a 500 gram package used to.

So, what we should do with a budget is begin with simply listing our basics – all of them and trying to figure out how much of the family income we need. Then we move on to the other section of our financial profile – creditors and investments.

Here is the budget I use:

Free Monthly Budget Worksheet

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