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Budgeting, Banking and Saving
Citizenship and Immigration Canada


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. Read about how to plan your budget.

Banking information
Banks and 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
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. 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 structure Number of families %
Average family income $ %
1990 1995 1990 1995
All families 7,355,730 7,837,870 6.6 57,339 54,583 -4.8
Husband-wife families 6,402,090 6,700,355 4.7 61,053 58,763 -3.8
Wife with earnings 4,221,510 4,319,105 2.3 69,186 67,894 -1.9
Wife without earnings 2,180,575 2,381,255 9.2 45,307 42,200 -6.9
Male lone-parent families 165,245 192,275 16.4 45,557 40,974 -10.1
With earnings 147,075 162,845 10.7 49,239 45,666 -7.3
Without earnings 18,170 29,430 62.0 15,757 15,008 -4.8
Female lone-parent families 788,400 945,235 19.9 29,652 27,721 -6.5
With earnings 595,795 667,000 12.0 35,150 33,960 -3.4
Without earnings 192,600 278,230 44.5 12,642 12,765 1.0

This table contains data selected from Catalogue No. 93F0029XDB96008 in the Nation Series, Statistics Canada

How do you draw up a budget?

First, establish 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:

  1. taxes and other items that you must pay,
  2. necessary expenses such as food, shelter, clothing and transportation, and
  3. luxuries.

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 these are:

  • shelter (a place to live);
  • heating and utilities;
  • food;
  • clothing; and
  • transportation.

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?

Banks and other financial institutions (such as trust companies, caisses populaires and credit unions provide):

  1. a safe place to keep your money;
  2. services to help you manage your money; and
  3. 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:

  1. investing your money, for which they pay you interest;
  2. lending you money, for which they charge you interest; and
  3. 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 card company.

What do financial institutions offer you?

  • Safety. 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.

  • Advice. 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.

  • Services. 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.

Saving Money

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:

  1. 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.

  2. Retirement. 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.

  3. Emergencies. 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.

  4. Long-term needs. Specific longer-term family needs, such as your children's post-secondary education, which is not free in Canada.


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