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| Budgeting, Banking and Saving |
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| 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.  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: taxes and other items that you must pay, necessary expenses such as food, shelter, clothing and transportation, and luxuries. 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. 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 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. 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. 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. Essentially, banks 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 conventional loan. A credit card, usually provided by a financial institution or a department store, allows you to buy things 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. Safety. All banks and most trust companies are regulated by the federal government to determine whether they are financially sound. All Caisses Populaires and credit unions and some trust companies are regulated by the provinces. All deposit taking institutions, other than caisse populaires and credit unions, are required to be members of the Canada Deposit Insurance Corporation (CDIC). CDIC insures eligible deposits to a maximum of $ 60,000.00. 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. 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 will likely provide a good return in the long run. You might also need a car, a computer or other tools to help you with your business. 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:
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