Have peace of mind: Review your finances

With higher interest rates, inflation, rising prices, and economic challenges, many Canadians are feeling the financial stress.

In the 2023 CMHC (Canadian Mortgage & Housing Corporation) Mortgage Consumer Survey, it was found that:

• 74 per cent of mortgage consumers are impacted or anticipate being impacted by a rise of mortgage interest rates.
• 49 per cent of mortgage consumers impacted face difficulty maintaining certain debt payments, including mortgage payments.
• 46 per cent of respondents said they must adjust their household budget; 24 per cent said that they have difficulty maintaining certain debt payments such as credit card (14 per cent) and mortgage payments (10 per cent).

Whether or not you are feeling similar financial issues, one of the best ways to understand where your money is going and where you can make changes, is to take control and create a monthly budget. Budgeting is a real solution to help alleviate the stress associated with money issues.

The key is to create a realistic budget based on your situation and goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula to figure out how your income is compared to your spending. It also helps you review all your costs and enables you to make changes either to increase your monthly cash flow or just feel less stressed.
The following are steps to help you get started:

1. Determine your income

When creating a budget, you need to know exactly how much money you are bringing in each month and what gets deposited into your account. If you use your net income before taxes, you will end up overspending.

2. Track your spending

Once you know how much money you are bringing in each month, you will need to know what your expenses are by reviewing all your monthly bills. This gives you an idea of exactly where your money is being spent. It is important to record every expense you have, including fixed and variable expenses. Fixed expenses are items such as mortgage payments or rent, loans, strata fees, childcare, etc. Your variable expenses would be items such as groceries, gas, gifts, entertainment, and eating out. Variable expenses are typically the costs that you can cut back. You can start by averaging your costs and keeping track of all your expenses, for example, keep receipts for a month and entering it into your budget.

3. Set realistic goals

This is key. It is critical to determine what you can live without and where you can cut costs that are realistic for your situation. Ideally, when doing a monthly budget, you can consider the 50/30/20 rule, which consists of:

• 50 per cent of what you spend is for needs such as your rent, mortgage payments, utilities, car payments, groceries, gas.
• 30 per cent of your income goes to wants such as gifts, entertainment, vacations, eating out, etc.
• 20 per cent of your income goes to savings or paying down debt such as an emergency fund, retirement, children’s education, credit cards, and loans.

4. Make a plan

Once you have your goals, you can plan to improve your monthly cash flow and have realistic spending limits for each of your categories. By taking a look at what is important, and then re-prioritizing, it can help you free up some cash, while at the same time, stop you from spending money on things you don’t really want or can do without.

5. Adjust your spending

Once you know how much income you are bringing in each month and what you are spending it on, you can look at adjusting where you spend your money to ensure that you stay within your budget — having a realistic look at your wants and the things you can do without. This is a great time to also review your fixed expenses, such as your mortgage payments (for example, can you extend your amortization period or change your payment schedule?). Before considering this option, it is always best to talk to a mortgage expert to see what makes the most sense for you.

6. Stay on track

It is not only about making a budget and then forgetting about it. In order to be in a better financial position and feel less stressed, tracking your budget on a monthly basis is important to catch any changes in your spending habits. It’s always a good idea to review your budget on a quarterly basis and take into account any increases in expenses or wages that may require adjustments to your original budget.

There is a free, online budget planner tool from the federal government that can help. It can be found at https://itools-ioutils.fcac-acfc.gc.ca/BP-PB/budget-planner