Written by: Tara Lehman Copyright: September 2018
Money? What money? Does this sound familiar? Most people struggle with money at some point in their lives and some live pay cheque to pay cheque. One thing that we are not necessarily taught in life is how to save money and spend within or under our means.
What exactly does it mean to spend within or under our means? It means knowing how much money you have coming in and not spending more that that value. In fact, we should spend less that than value if we want to have extra money. Spending less means having more to save for retirement / that big plan (think car or trip) or to pay down debt. If you are spending over your means, then you are spending too much money and won’t be able to pay down debts, purchase that new pair of shoes or buy that new car. So, what can be done?
Ensuring you understand what you bring home on a pay cheque is vital. Is this gross pay or net pay you are thinking of when you spend? Gross pay is the total amount you would earn before income taxes, EI, CPP or other deductions such as pensions or benefits you may need to pay for. Let’s say you make minimum wage at $14 per hour and you work 40 hours per week. Your gross pay would be $560 per week. However, you would take home much less than that. After income taxes, EI and CPP alone your net pay (what you actually bring home) is around $462. But wait! Your company has a pension plan (always take full advantage of this for your retirement – you won’t be able to live off your CPP and OAS – you need this extra so sign up) and matches to 3%. We are now down to $448. Most companies who have benefits packages have the employees pay a part of this expense. Let’s say you have to pay for long term disability and your health benefits (also a great idea as some prescriptions, etc can be pricey if you are not part of a plan) can cost up to $1500 per year. Calculating that in, you could be down to $419 per week. Be sure you understand the deductions and take full advantage of the good ones! These are important to your wellbeing.
Now we have $419 per week net pay – what we actually bring home. In a 4-week month, this equates to $1676. Most families have 2 incomes, so for demonstration purposes we will assume both the people in this household make minimum wage so our $1676 becomes $3352.00 for the month for the household. This is what you have before: rent / mortgage, food, clothing, going out, bills for hydro / water / gas, and many others.
What should you do to see if you are living within or over your means? Calculate it. Start with your $3352 and deduct everything you pay in a month to see what is left over. You need to do a full month, to ensure all monthly expenses are included. If you see that you are in a negative balance at the end, you are spending too much and are living over your means. If you see some left at the end of a month, good for you! This shows you are on your way to figuring out how to live within or under your means. Need help with this? No problem. At Twin Life Coaching & Business Services we have a simple to use tool to help you as part of our Financial Wellness package.
What do you do when you are spending over your means? Look at your expenses and see where you can reduce. Going out to restaurants, buying alcohol, groceries and even cell phone or TV bills are all great places to start. Can you reduce these? Do you need to have that much data on your cell phone? Do you need 200 channels on the TV or can you go to a lower package? Did you really need to buy that expensive item? Really start to look at what you are buying and ask yourself: do I really need this or need to go out? Is there a less expensive way to have what I want? Can I buy a car that is a year older to save a lot of money? Do I need a new job or second job? Taking a hard look at what you spend and asking yourself why or is it worth that much is key in reducing spending. There is usually a way even if it means a new or second job, so don’t feel like there is no light at the end of the tunnel.
It is time to ignore what society tells us about what to buy or what new appliance, coffee or toy to buy. It is time to be real about what is in the bank and control spending, using only what is left after all necessary bills are paid to buy those extras. You will feel much better about your finances and this in turn, will make you feel mentally healthier.
Here’s to knowing and understanding the basics of your income and wishing you financial and mental health!
Source for you if you are looking for more information: https://www.canada.ca/en.html or contact your financial advisor for more information.