Budgeting, Banking and Saving
Citizenship and Immigration Canada
cost more to get started in Canada than you expected. Although Canadian
salaries are relatively high, so are costs. A budget, which is a personal
or family plan to manage your money, can help you plan your expenses until
your next pay cheque. Read about how to plan your budget.
other financial institutions such as trust companies, caisses populaires
and credit unions provide a safe place to keep your money and services
to help you manage your money. Banks also provide loans and mortgages.
Read about the other things that banks do.
Saving your money
budget to save some money each month, usually in a savings account in
a bank, trust company, caisse populaire or credit union. You can
save for a number of reasons. Read about saving your money.
Why have a budget?
It may cost more
to get started in Canada than you expected. Although Canadian salaries
are relatively high, so are costs. A budget, which is a personal or family
plan to manage your money, can help you plan your expenses until your
next pay cheque. Careful budgeting will help you avoid borrowing money,
which you will have to repay plus interest.
Number of Census
Families and Average Family Income in Constant (1995) Dollars by Family
Structure, for Canada, 1990 and 1995 (20% Sample Data)
family income $
This table contains
data selected from Catalogue No. 93F0029XDB96008 in the Nation Series,
How do you draw up a budget?
what you earn in terms of take-home pay. Then look at what you spend.
The spending side of your budget divides into three general areas:
- taxes and other
items that you must pay,
- necessary expenses
such as food, shelter, clothing and transportation, and
How much is your take-home pay?
Your take-home pay
is what you earn after you've paid such things as:
- income taxes,
- Canada Pension
Plan or Quebec Pension Plan,
- Employment Insurance,
- union dues,
- retirement or
pension plan, and
- any other deductions
from your monthly pay cheque.
Depending on your
total income, these compulsory items can take about 25 to 35 per cent
of your total income.
If you are self-employed,
you might want to put about 30 per cent of your income in a separate account
for taxes and savings for retirement.
The important thing
is to plan your budget based on your take-home pay, not your pay before
taxes and deductions.
How much should you spend on necessities?
Write down the cost
of necessities -- things you are certain to need. The most important of
- shelter (a place
- heating and utilities;
- clothing; and
You can economize
on necessities -- live in cheaper housing, buy food economically, choose
clothes with care, walk, ride a bicycle or take the bus rather than take
a car or taxi -- but you can't live without them. You may find at first
that necessities take up as much as two-thirds of your budget.
How much should you spend on luxuries?
Luxuries are the
items you can get with the money left after you pay for the necessities.
Most people have to choose very carefully how they spend that money. For
example, if you must set aside money for education or medical care, there
will be less for items such as a car, gifts or long distance phone calls.
How does the income tax system affect you?
Both federal and
provincial taxes are normally deducted from your pay cheque by your employer.
Each year, on an income tax return, you list your income, deductions and
tax credits, in order to calculate the taxes that must be paid. If you
have already paid more than you owe, you may be eligible for a refund.
Also, by completing
the tax return, you give the federal government the information needed
to determine if you are qualified to receive the Child
Tax Benefit and the Goods
and Services Tax (GST) credit.
How do banks work?
and other financial institutions (such as trust companies, caisses
populaires and credit unions provide):
- a safe place to
keep your money;
- services to help
you manage your money; and
- loans and mortgages.
It is important to
realize that financial institutions do not just hold your money in a safe
place. They make money by:
- investing your
money, for which they pay you interest;
- lending you money,
for which they charge you interest; and
- providing you
with credit, usually in the form of a credit card. The interest rate
on credit cards on your unpaid balance is quite a lot higher than on
a normal loan.
How do credit cards work?
A credit card, usually
provided by a financial institution or a department store, allows you
to buy things up to a certain limit and then to pay the money over a period
of time. In other words, you owe money to the credit card company. If
you pay only the "balance now due" portion of the monthly bill, you are
paying interest, but you are not paying off the debt you owe to the credit
What do financial institutions offer you?
The federal government regulates all banks and most trust companies.
The federal government determines whether they are financially sound.
The provinces regulate all credit unions and caisses populaires,
as well as some trust companies.
All deposit taking institutions, other than caisse populaires
and credit unions, must be members of the Canada
Deposit Insurance Corporation (CDIC). CDIC insures eligible deposits
to a maximum of $60 000.
Banks tell you in advance what kind of account, loan or mortgage you
can receive. They usually give responsible advice, but you should check
with more than one to find the accounts and services that are best for
you. You do not need to sign any agreement until you are sure that you
understand what it means.
All financial institutions offer packages of financial services. You
should choose the type of account that you will use most. For example,
an account that offers travellers' cheques, international credit cards
and foreign banking services may charge extra for each of these services.
When should you borrow money?
There are many good
reasons to borrow money, such as furthering your education, opening or
expanding a business or buying a house. These are all investments that
should give you a good return. You might also need a car, a computer or
other tools to help you with your business.
Why, where and
how should you save money?
Most people budget
to save some money each month, usually in a savings account in a bank,
trust company, caisse populaire or credit union. You can save
for a number of reasons:
- Major purchases.
Before a reputable financial institution will lend you money for a house,
a car or to start a small business, it will usually ask you to provide
a down payment of up to 20 per cent of the full cost from your own savings.
If you contribute to a registered retirement savings plan (RRSP), you
do not have to pay income tax on these savings until you use them. Many
people contribute to such a plan at work through payroll deductions,
especially if they do not have a pension plan. Your bank can tell you
more about RRSPs.
To some degree you can insure against accidents, sickness and loss of
income, but it is a good idea to have savings put aside for the unexpected.
Most financial advisors suggest you try to keep three months' salary
in the bank.
- Long-term needs.
Specific longer-term family needs, such as your children's post-secondary
education, which is not free in Canada.