Posted on July 20, 2017
Everyone loves to hate budgets – Part 2
(see here for Everyone loves to hate budgets – Part 1)
It has been a crazy month or two to try and nail this down as we are a bit in flux with Mr. Tucker’s new job and our new government benefit payment amount (which I am shocked we still get, but hey, I’ll take it!). Still, in many ways every month is going to have some sort of issue affecting our budget so giving you a snapshot of today allows me to show that financial planning should be open to change whenever there is new information. So without further ado, how we spend money – pie chart edition:
As I have mentioned before, we live off my salary and save Mr. Tucker’s salary. So the figures above represent the percentages we spend based on my salary alone. It puts us over the “recommended” housing allowance of 33% but not by much. I am sure you have some questions so let’s go through the categories:
Hydro, water, gas (residential) – 8.63%: I suppose I could have done these categories better since I know them and they may not be as obvious to you (duh). So the top three entries are what most people would shuffle under “utilities,” and they represent electricity, water, and our heating/cooling/hot water tank, respectively. We also only get a water bill every second month, so this number reflects the average per month amount/
Housing – 34.53%: this is the rent we currently pay to live in our home. We rent from a relative and by the end of the year we plan to buy this house outright and this category should go down.
Car savings/emergency savings – 6.90%: Car savings represents what we save for maintaining our (paid off) Grand Caravan and our savings for a future car down the road. Our car is 7-years-old this year but since we haven’t driven it a lot (it has under 85000km) maintenance has been low. We’ve driven many of those KMs in the last year due to my current medical issues but hope to reduce that soon.
Groceries/personal care – 13.81%: To be honest, this is what I budget monthly but we also belong to a CSA that we pay for in February and that is filed under the “all from list” category (more about that later). These are our fresh vegetables and fruit from the middle of May until the Middle of October.
Gas – 3.22%: the second (confusing) entry for gas. This is actually gas for the car. When we are not driving my disabled butt around this is much lower (but an entry appears for public transport) but since Mr. Tucker works from home and we are walking distance from most amenities we don’t usually need to drive as much.
Cell/insurance – 8.10%: This category is a one-line entry on my budget because I actually have these amounts come off my credit card and then I pay my credit card like a bill. Because they are constant amounts every month, it makes it easier to lump them together. Currently, it stands for our life insurance, our car insurance, and our cell phones/internet, as well as our YMCA membership (which, after the summer we are going to cancel but for now we get a huge markdown on summer camps for the kids so we keep their basic membership rolling).
RESP – 1.84%: Registered Education Savings Plan. Self-explanatory, but essentially post-secondary education for the kids. This amount will hopefully go up significantly once we pass our first tax year with Mr. Tucker’s new job.
Pocket money – 8.63%: This could probably be renamed “Entertainment,” but for simplicity I have lumped Mr. Tucker’s rehearsal fees for his band in here as well as the money I allocate for fun spending every month. This is because he pays once-a-month. Conversely, I put my dragon boat fees in the category below because the payment is once-a-year.
All from list – 14.59%: If you are thinking this is a strange entry, you are correct. However, it’s my most important strategy for managing expenses that don’t come up once a month. They may come out once a year, or two or three times a year, but if I save for them monthly they aren’t surprises. Here is an example of things we have on the list: extracurriculars for the kids, snow removal, clothing, child care, replacing household items and birthday/Christmas gifts. I have this amount socked away in a savings account at an online bank and when the amounts are due, I just move the money back over to our checking account.
That is pretty much it. I am not the kind of person that needs to have every category meticulously balanced down to the penny so sometimes our entertainment money may go to buying really good steaks for the BBQ, and even though I have a grocery budget monthly our CSA comes out of our “all from list,” category. I don’t feel the need to perfectly categorize every cent into its appropriate field because all I want is a big-number snapshot at how our spending is going. By knowing my averages every month I will also know if any adjustments need to be made. Whenever a category changes (ie: car insurance goes up), I make adjustments accordingly.
What is interesting to note is that I keep all these as averages and so there is almost always extra money in the account from various places. So while our house gas bill during the summer months is $60 it may go as high as $175 during the coldest of winter months. I also don’t budget 100% of my income, which you will see when you add up the percentages.
Real math people will look at my charts and roll their eyes because they are probably the kind of people who need to know where every single cent goes. I am not that person. I just need a road map to make sure I am heading in the right direction. I don’t get panicked by detours because of the easy-going nature of my average categories. When things change, just go with the flow and change with it.
Tracking real money spent
Because a budget is a projection of anticipated spending, I also have a column beside the budgeted amount to reflect the real amount. Here are some numbers from July, in percentages (based on just my income):
As you can see some numbers will be 100% bang on, such as my car savings and Housing number. That number is an automatic withdrawal from my account every month for the same amount. If you look at our Pocket money amount though, I haven’t spent it all because the month isn’t over. So far I have only spent over 1/3 of the money I have allocated. Things like gas for the car fluctuate constantly.
At the end of the year I can add up all my columns when I go to re-do my budget and see the categories I have overspent – or underspent – in and adjust accordingly.
I update this spreadsheet whenever I pay a bill, or at minimum you could update the spreadsheet about once-a-month to ensure you are on track.
So who brings in what?
I hemmed-and-hawed about this pie chart because it’s a bit of a misrepresentation. You see, Mr. Tucker has no income tax taken off at the source so we will be on the hook for that tax at the end of the year. However, because we have so much contribution room in our RRSPs (Registered Retirement Savings Program) carried over from previous tax years, I think we will be able to get our taxes close to zero for at least the next two tax years. Once that changes, this pie chart will definitely change.
Also, my amount is not just my net, but it is also my net amount after taxes, benefits, pension, and insurance through my employer. But for simplicity’s sake, let’s just count total amount coming in every month.
Our government benefits are the amount the Canadian government gives us for our two children based on our family net income. Obviously, the less you make the more you get (you can play with the benefits calculator here if you are interested). What is simultaneously funny and not-funny is that if we bring Mr. Tucker’s tax liability down to zero next year, this amount can conceivably skyrocket even though our gross income doesn’t change.
So if you have kids, the more you save for retirement will a> give you retirement savings that can grow without capital gains, b> reduce your income tax by up to 50% of the amount you have saved, c> help you qualify for more Canada Childcare Benefits. So if you needed a push to get you saving – there it is!
But your chart isn’t realistic!
Nope! I deliberately don’t include Mr. Tucker’s salary because I never want to think of it as income, I want my brain to earmark it as savings at all times. However, for fun I did put together another chart to show you what it would look like with his amount included. You will notice that in this chart, Emergency savings, car savings, and RESPs are lumped in with “savings” so you can get a big picture idea of what our total savings rate is. You will also notice that it doesn’t add up to 100% because I haven’t allocated every single cent & always have a small bit of “give” in our checking account.
The other wildcard in this equation is that since Mr. Tucker gets paid in USD I did his income calculation based on the average exchange for this year. This may give us an idea but until the year closes I won’t know what the real exchange is. So again, I am not looking for perfect here, just an idea. That’s why we call them projections.
What is also not reflected is that Mr. Tucker will see bonuses over the year and I will also get a cost-of-living increase. In the past I have allocated that money to savings or vacation – sometimes both. But because we can’t rely on these quite yet, I don’t add them to our projections.
To be honest, I know some people will look at the way I manage our money and think it is either too easygoing or way too difficult to manage. But remember: a budget is personal. The way you manage your money will reflect your personality. In the end, my personal view on budgets still stands: A budget is a plan you put in place to free yourself from having to think about money.
Hopefully this post inspires you to put your own system in place that not only reflects your personality, but that also will give you financial peace of mind.