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Financial Friday #104: How Do Your Spending Habits Stack Up?
“I don’t know where my money goes every month”
The latest government figures show the average Canadian household spends $68,980 (see chart below for a partial breakdown) every year not including taxes and pension contributions. The data is from 2019 and the number has likely gone up given recent inflation, but it does provide an interesting reference point to see how you stack up against your fellow Canadians when it comes to spending.
Trying to compare one household to another is an apples to oranges comparison as household size, income, and spending habits vary greatly, but tracking your expenses for a month or two is a very worthwhile exercise. Not only will it answer the “where does my money go question,” it also identifies areas where you are spending more than you thought, or more than you would like.
Cars a great example and the average from the above chart at 16% is in line with what we recommend. The problem is we hear from a lot of people spending 20% or more of monthly take home pay as operating costs are often underestimated.
If you are looking for a car, consider a lightly used one to lessen the depreciation hit and make sure to factor all of the costs into your decision making including snow tires, oil changes, routine maintenance, repairs, gasoline, fuel economy, insurance, parking, financing costs, and last but not least, the purchase price.
Food is another big expense bucket and 11% of your total spend for groceries is not high, but the cost of restaurant food at $2775 is more than one third as large as a year's worth of groceries!
The actual cost of the ingredients in a restaurant meal is usually in the 20% to 25% range, so you are paying a huge premium. On the other hand, dining out has many benefits and is an important part of our social life, overall wellness, and the livelihood of many people. It is also the lowest hanging fruit in many household budgets and you owe it to yourself to look into how often you visit a restaurant and how much your spend.
One other expense that caught our eye was communications at almost $2700 — not surprising as Canada has some of the highest internet and mobile phone fees in the world. A lot of us sign up for a monthly plan and then never give the cost much thought after that, but there are serious savings to be had.
The most obvious is cutting the cable wire altogether and going with a lower cost option like Netflix at $12/month.
Mobile phone plans vary hugely in price and the offers and features are constantly changing, even from the same provider. Our advice is to review your contract and usage to confirm what you pay for now is what you really need, and then start investigating the latest offers. If you have simply been renewing your plan for months or years, chances are you are paying too much.
If you are looking for more cost-cutting ideas, why not join us next week for an hour-long session on how to lower your monthly expenses. We will be looking at things like that mobile phone and telling you how you to get a better deal… simply by asking. Anyone joining live will get a free e-book with some great tips and script that tells you exactly what to do and say when you hit up your current provider for a better deal.
Prices are jumping every month and it's more important than ever to figure out where your money goes and identify some discretionary areas where you can cut back. As we explained in last week’s Financial Friday, you don't necessarily need a spreadsheet to continuously track every little expense, but you do need to keep a close handle on your total monthly spend.
What to do with a workplace pension when switching jobs? If your employer has a defined benefit or defined contribution plan and you decide to leave, it creates a lot of choices and sorting out the best option can be a real dilemma.
5 rental properties and no principal residence! You would think anyone who owns five rental properties in B.C. is well on their way to retirement bliss, but this analysis provides some great details on how taxes, investment property cashflow and your CPP/OAS benefits made this a less than optimal retirement plan.
