Budget Basics – Part Five will address how to determine how much to put in your budget for specific items. Most of us can list the regular monthly categories and also attach a reasonably accurate $ amount to each one but there are lots of other items to consider.

There are many little expenses that are not as obvious but they add up quickly. Haircuts, gifts, drugstore/toiletries, car maintenance and holiday weekends. To make sure that you have included all of them, use your credit card and bank statements to check for items you may not have included. It may be a good idea to put them in separate categories so you can keep track of the allocated $.

If you choose to lump several budget items such as gifts in with entertainment, there is danger that you will spend your ‘entertainment’ budget and don’t have $ left to buy gifts. It’s a good idea to know what makes up your entertainment budget and take out your weekly allowance for regular cash purchases, leaving the rest in your account to cover off the irregular purchases.

For example – if your weekly entertainment budget is $100 and typically spend $10 on a lunch out, $40 on an evening out, $15 on coffees and snacks – you are left with $35. Are gifts or haircuts included in this category? If so, it’s a wise idea to take out $60 per week, leaving the remainder in your account to pay for gifts.

Let’s see what happened to Lily.

Lily earns $45,000 per year which converts to $3,750 per month before deductions ($45,000/12 = 3750). Assume 25% in deductions (income tax, medical & other benefits) leaves $2,812.50 per month net pay ($3,750 * (1-.25) = 2812.50). She is paid twice per month so her average net pay check is $1,406.25 ($2,812.50/2 = 1406.25).

Lily has the following monthly expenses – rent $1,000, car payment $300, car insurance $150, gas $150, food $300, utilities $200 and entertainment $400. These total $2,500.

Now, Lily is uncertain….her net pay is $2,812.50 per month and her expenses are $2,500.00 per month. She makes more than she spends … right? She should have $312.50 in her account at the end of each month. Why doesn’t she? She knows she has a balance on her credit card and she certainly doesn’t have a large savings account.

Lily hadn’t thoroughly calculated her other and entertainment expenses. She hadn’t included her hair cuts/colouring, gifts, holidays or car maintenance. She had thought that $400 per month sounded ‘about right’ for entertainment. In fact she has been spending more than $400 per month on all of these items and this is why she has a balance on her credit card of $1,500.

Canadian Expense Averages:

On average, Canadians spend 20% on shelter, $15% on transportation and 11% on food. The average deduction for taxes is 20%. This leaves about 35% for other things such as debt repayment, clothing, gifts, recreation, entertainment and savings (retirement and other). Remember – this is an average and depending where you live and your personal situation these percentages can vary.

Next post will address how to tweak your budget to include provisions to meet your financial goals.