Friday, June 2, 2023 / by Mario Daniel Sconza
Government figures from 2019 (the latest available) show the average Canadian household spent around $70,000 (see chart below for a partial breakdown) not including taxes and pension contributions. While the dollar amounts have no doubt jumped significantly since 2019, the percentage of our income going to each category provides the most insight into where the average Canadian paycheque goes every month.
Keep in mind that comparing one household’s spending to another can be an apples to oranges comparison as spending habits vary, but tracking your expenses for a few months 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. Until you can dig into your own expenses, lets look more closely at the “average” figures below and see if we can find any surprises.
The average from the above chart for a car is 16% and in line with what we recommend. The problem is that car prices have spiked, car loans are getting longer (7 years is common), and the average interest rate on a car loan in 2023 is 7.83%. A $35,000 car at 7.83% over 7 years will cost you $9000 in interest. Operating costs including gasoline, insurance and maintenance are also prohibitive. It may be impossible to do without a car, but it’s time to sit down and look at the cost of your car and see how much of your monthly income it consumes. The great thing with cars is they can be easily bought and sold, and a cheaper option is often available.
Food is another huge expense bucket and recent inflation has only added to the misery of a trip to the grocery store. The surprising number here is that restaurant food accounts for almost one third of the total! Despite the rising cost of food, the actual cost of the ingredients in a restaurant meal is usually in the 25% range, so you are paying a huge premium. Dining out is convenient and can be an important part of our social life, overall wellness, and the livelihood of many people. However, it is also the lowest hanging fruit in many household budgets. You owe it to yourself to look into how often you visit a restaurant and how much you spend.
One other expense that caught our eye was communications eating up almost 5% of our paycheque. This is not surprising as Canada has some of the highest internet and mobile phone fees in the world. According to this study, Canada's cost-per-gigabyte is seven times more expensive than Australia, 25 times more than Ireland and France, and 1,000 times more than Finland! A lot of us sign up for a long-term monthly plan or family plan and set up an automatic payment, so the cost is quickly out of sight and very out of mind.
The good news is there are?serious savings to be had. 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 (use comparison sites like the one below to explore the latest offerings)
If you have simply been renewing your plan for months or years, chances are you are paying too much. The same goes for cable TV packages and home internet. There are lots of offers and deals floating around and plenty of options, from Netflix to Prime, to cutting the cable wire altogether.
Often-heard advice about dividend stocks, when to take CPP, topping up your RRSP, and stock market risk can prove costly. Check out this article for a financial episode of Mythbusters.
At one time it was $1000, but that won't carry you very long these days. Learn the factors you need to consider before arriving at your number.
There are now 1300 ETFS available to in Canada investors and this guide from MoneySense has a lot of information about ETFs, what to look for, and ranks plenty of options (Enriched Academy doesn't recommend specific investments or financial products, make sure to do your research).
The possibility of the Bank of Canada hiking interest rates again next week or after their July 12 or September 6 meetings is justifiably gaining traction.
Don't just take our word for it.... this 39-year old self-made millionaire espouses many of the same, common-sense habits we recommend.