Budgeting for a Fixed Income

Budgeting for a Fixed Income | By Guest Author: Linda Stern, Licensed Insolvency Trustee

Budgeting for a Fixed Income

A fixed income is often associated with seniors on pensions. Surprisingly, it is also a reality for many other people. Workers, in both public and private sector jobs, have lived with frozen wages and minimal increases for several years. This has left their income lagging behind inflation. If you have just lost your job, taking maternity leave, are a student or on disability benefits, you too may be getting by on a fixed income. The guarantee of wage merit increases and year-end bonuses are simply not a reality for many Canadians. That is why financial literacy and money management skills are an absolute necessity for people of all age groups, not just seniors. So where do you start with budgeting for a fixed income?

Financial Literacy 101: Budgeting

Budgeting is a learned skill for many individuals. Credit counselling sessions usually begin with an assessment of your literacy on this subject. To create a budget, you must first understand all your sources of income. These include salary and wages (after taxes), pensions, commissions and bonuses, rental income, interest on investments, etc. Against this, we help you chalk up your important and inflexible core expenses. For most people, these include rent, mortgage and auto payments, property taxes, utility bills, school loan repayments, etc. Many payees set these up as automatic deductions from your bank account. You generally have no flexibility but to pay them when they are due. 

Next, review your other necessary expenses. Starting with the most important, these include groceries, fuel & transportation, kids’ clothing etc. While these are similar to your core expenses, you do have wiggle room with how much you spend on them. For example, we all need to eat. Your food budget will vary greatly depending on whether you rely on food banks or eat out at restaurants, frequently.

Anything left over after your necessary expenses represent your discretionary funds. You may use those for treats, like entertainment and travelling.  At the end of the exercise, if your spending outpaces your income, then here are some tips to ensure you do not fall into unmanageable debt.

Tracking your Expenses

As the old saying goes, what gets tracked gets measured. You will be able to control your spending much more efficiently when it is documented.

At the least, your budget can be set up on an Excel spreadsheet. However, your iPhone or Android app stores have dozens of effective apps that allow you to do this for free or very inexpensively. The better ones link to your bank account, helping you keep track of fees and interest charges. Advanced settings alert you when automated bills are due. Almost all apps provide you with a helpful summary at the end of each pay cycle or month end. This visibility to your spending, by category, will help you decide which expenses to reduce.

Groceries on a Fixed Income

The average Canadian household spends $6,000 annually on groceries, representing the largest item on your budget, after income taxes and housing. Small expenses surprisingly add up. For example, a daily gourmet cup of coffee en-route to work adds up to $5 per day, $25 per week, $100 per month and $1,200 per year!

Cutting back on eating out is one of the most efficient ways to find extra funds in your budget. But it requires advanced planning of weekly meals, shopping for groceries and setting time aside to cook at home. Bulk meal preparation and refrigerating or freezing them can save both time and money. And if that is not your style, then cooking larger portions for dinner will ensure you have leftovers for the next day’s lunch.

Smart Purchasing Strategies

The digital age allows you to efficiently save your way through shopping. Apps like Reebee and Flipp have taken coupon clipping to the next level. They feature savings from all major retailers, groceries to home improvement.  And they efficiently allow you to shop around for bargains while creating a shopping list.

If you have the storage space, purchasing items in bulk can result in a lot of savings. Paper goods and laundry detergent are popular bulk items at mass merchants, like Costco. They do not perish and we use them often. If you have several options to pick from, use the “price per unit” to work out the best deal.

Buying direct from the source is another way to ensure your spending habits remain in line with a fixed income. In-season produce is sometimes cheaper at farm stands or local farmers’ markets. Motivated to sell in bulk, farmers take the middle man grocer out of the equation. Factory direct or outlet warehouses work on the same principle to sell merchandise that did not make it to their wholesale retail customers.

Budgeting while Raising Kids

Parents raising young children often have to make very challenging choices. Infants and toddlers require diapers and nutritious food, and they outgrow their clothes extremely quickly. Teenagers too require new clothes each season, if not for fashion, for size. And they seemingly graze their way through your fridge and pantry before you can replenish it. Entertainment, birthday parties, gift giving, after school activities, back to school expenses, tutoring and saving for their post secondary education can all substantially pitch away at your budget.

You must diligently plan and prioritize these expenses, carefully. Spend your money on important and necessary items, first. Treats and gifts must be limited to funds in your discretionary spending.  

For your fast growing infants and toddlers, settling for second hand and gently used clothing is a sensible thing to do when money is tight. And numerous on-line sources exist to find them right in your neighbourhood on Kijiji, e-Bay and FaceBook Marketplace. If you keep them in good condition, you can, in fact, resell them once your child outgrows them. And as for your teenage kids, they may actually enjoy spending their own clothing allowance on cheap finds at your neighbourhood second hand stores.  

Limit dining out as a treat. This is part of your discretionary spending. Home-made snacks are healthier and often cheaper, than their store bought counterparts for kids of all ages. And hooking up with other neighbourhood parents and similar aged kids can help bring some expenses in line. Examples are nanny sharing, trading babysitting services and group outings to parks, libraries and community events.   

Saving on a Fixed Income

Where possible, financial advisers will recommend you set some funds aside for a rainy day, retirement or education savings goals. This has to come out of your discretionary spending, of course. However, if your income is paid out on a bi-weekly basis, then a carefully orchestrated budget can allow you some savings. Most months, you will receive two pay cheques. For two months, you will receive three. If your budgeting works, then the extra payments can quite reasonably be put towards savings.

Living on a fixed income requires planning. With proper budgeting, it is manageable and will go a long way in ensuring you remain debt free. If you need help getting started, contact a qualified credit counsellor.

Linda Stern | Licensed Insolvency TrusteeLinda Stern, a Licensed Insolvency Trustee, is a guest blogger for Family and Credit Counselling Services, a blended not-for profit community-based agency offering debt counselling & management as well as family/individual support services within York region.

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