#8 Income Volatility - Spending Habits - Part 2 of 5

"The impact of income volatility on Canadians" survey was conducted by Ipsos for TD Bank in 2017.

In Part 1 we learned that income volatility affects 10 million Canadians. And the way to combat it is to either A. Spend only as much as the lowest income month or B. Spend the average of your income every month.

Option A is more conservative, easier to execute and better for your savings. But option B is better than going into debt to live.


In Part 2 we are going to talk about Spending Habits of Canadians.

46% of Canadians spend less than their income. This means 46% of Canadians are saving money. That's great.

But 38% are spending exactly what they bring home. Saving nothing.

That leaves 16% of Canadians who are not saving, but are actually going into or further into debt by spending more than their income. This is a troubling statistic because we know that saving money is the only real way to stop worrying about money, doing work for money, and transition to doing work for fun.

Work really is harder when you "have to" do it.


When asked if they paid their bills on time. 9% said they paid "some" bills on time with 24% saying they paid "most" bills on time. The remaining 67% of us always pay the bills on time.

33% of Canadians are paying overdue fees and interest on credit cards. The average Canadian's credit card debt is $4,000 paying 20% interest. That's $800 a year going to interest payments. That $800 could be going towards a child's RESP, or into your emergency fund, or into your savings account to earn you interest instead of being paid to someone else as interest.

The root cause of spending more than your income is a lack of planning.

Month 1: You make $3,000 and you spend to that level.

Month 2: You make only $2,500 but still spend $3,000. After 1 month you are $500 in the debt.

Month 3: You make $3,200 and maybe you learned your lesson so instead of spending $3,200 you spend $3,000. So you save $200. But you've already started a debt spiral. 

You put the $200 you saved toward your debt from month 2, but you still have $300 in debt plus $10 of interest owing.

Month 4: You make only $2,500, and again spend $3,000. Your debt owing goes back up to $800 and now you own another $15 of interest. 

It gets harder and harder to catch up because you got off on the wrong foot.


The first step is to plan your spending. 

If you are already in debt, you need a plan to still pay for all the essentials but also get rid of your debt and stop the spiral. Interest is amazing when someone is paying you, but it works equally horribly when you are the one paying it.

Step 1. Figure out how much all your necessities cost. Rent/Mortgage, utilities, gas, water, maintenance, insurance, transportation, food, internet/phones.

If you are single, you might be able to get these costs under $2,000 a month if you are living on your own. If you can share your housing costs you could get your necessity cost below $1,500 a month.

Step 2. Until your debt is paid off, try to only spend what's on the necessity list. Eating out should be restricted. Choose social events that are free or very cheap. 

Everything other than the necessities are considered luxuries. The smart thing to do is to get your debt paid off so you are back in control of your spending.

Step 3. Increase your luxury spending to bring your total spending up a little but no higher than the lowest income month you expect throughout the year. 

If in the low season you expect to make $2,500 a month then that's the most you should spend in any one month at the beginning until you get a hang of spending within your income and saving. 


Control over your spending and saving is a step by step process. No one gets the feeling of financial control on the first day. Give the system some blind trust at the beginning. Over time it will prove itself.


Save Money Retire Early is written by Jon Lo, a barely 30 something change optimist, and personal finance guy. I believe anyone can be rich or poor, it's what you save that makes the difference.

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