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If you’ve worked with us to execute a consumer proposal, you may be eager to stay on the right financial track. We are thrilled you’ve been able to find debt relief solutions and want to help you keep your momentum towards financial freedom.

Our Licensed Insolvency Trustee has worked with people in all types of financial situations. Although each case is different, we always recommend one piece of advice for everyone: learn the foundations of a good budget. There are many budgeting apps out there for you to keep track of your spending. We want to share with you the main rules for how to categorize and plan your spending so, budget calculator or not, you continue working towards your best financial future. 

Monthly Expenses

The key to every budget is knowing how much you spend from month to month. With multiple bills coming in, from interest payments to subscriptions, it’s easy to lose track of how much money goes out. We recommend organizing your expenses into categories that include:

• Housing
• Utilities
• Groceries
• Debt Payments
• Insurance
• Non-Essentials

This exercise is a good starting point for evaluating the areas where most of your expenses are found each month. Do what will be the most helpful for you to understand your overall financial situation. For example, you may need to add categories because of your unique situation, such as child support payments or pet care costs. 

The 50/30/20 Budget Rule

Now with your expenses organized, the next step is to determine if you can achieve a healthy budget that follows the “50/30/20” rule. This budget rule is a simple way to help you categorize your monthly expenses while working towards a better savings plan. For this rule, review the monthly expense list you created and organize it into three main areas: needs, wants, and savings.

According to the budget rule, 50% of your income should go towards your basic needs. Your expenses under the category of housing, such as your mortgage or rent payments and any home maintenance costs, are considered a need. Other needs include utilities like hydro and water, groceries, car and debt payments, and insurance. If you have health care costs such as prescriptions or physiotherapy, include them here. You may have other essentials including baby formula, diapers, or childcare costs. And don’t forget to include transportation expenses like gas or bus fare.

The second category, known as your wants, should reflect 30% of your monthly budget. These are the items or services you can live without (but do make life better!): takeout from your favourite restaurant, monthly subscription services like Netflix, weekly coffee runs, or a gym membership. For most of us, this category tends to fluctuate from month to month, especially during summer vacation or the holiday season where we may be spending more. Having a cap of 30% for your wants can be a practical way to monitor your spending and keep you within your budget. This is also the category with the most flexibility. For example, you may want to lessen the percentage of what you spend on your wants to make up for higher debt repayments in your needs category. 

The third category is your best strategy for a better financial future. With  more than half of Canadians  living paycheque to paycheque, many do not have protection from a shortfall. Using this budget rule, you should put 20% of your after-tax income into savings such as your emergency fund and your retirement funds. Under this category, you can save additional money for your debt repayments that go beyond the minimum payments included in the needs category. We encourage you to commit to 20%, even if it means having to reduce some of what you spend in your wants category. You’ll be grateful you did when you have savings to rely on if your circumstances change.

With a solid understanding of how to budget, you will be on your way to a brighter financial future!  Reach out  to a Licensed Insolvency Trustee at Crawford, Smith & Swallow Inc. to learn more about our debt relief services.