Inflation, skyrocketing rent and home prices, rising interest rates, and high taxes have put so much strain on the personal finances of Canadians. A recent study found that close to half the working population are living paycheque to paycheque.
If you’ve noticed your paycheque’s purchasing power is dwindling, and you have too much month left at the end of the money, you’re not alone. Here, we’ll look at the factors causing this cycle and how you can take control of your finances if you’re in this situation.
Living Paycheque to Paycheque
Whether you consider it a paycheck or paycheque, ideally, it should be enough to provide a living wage for you. A living wage allows enough income for you to maintain a normal standard of living without being stressed about your expenses. It doesn’t mean you’ll have a luxurious lifestyle, but it should allow you to handle all your bills.
The amount you need to earn for a living wage varies depending on where you live in Canada. For example, a living wage in Regina, Saskatchewan, is $17.90 per hour. You’ll need to earn $23.15 an hour in Toronto to make a living wage.
Currently, the minimum wage in Canada ranges from $14.00- $16.77 per hour, not high enough to be considered as a living wage in most places. To provide a living wage, your paycheque should cover:
- Your rent or mortgage.
- Transportation costs.
- Groceries, clothing, childcare, your phone plan and other living expenses.
- Savings for emergencies and retirement.
An increasing number of Canadians are finding that their wages are no longer enough to manage all their costs. In Canada, living paycheque to paycheque has become a new normal.
Paying off debt may seem impossible when you are struggling to make ends meet. This podcast outlines strategies to help break the cycle of living paycheck to paycheck.
How did we get here?
Just how many Canadians are living paycheque to paycheque? A recent poll by Leger concluded that 47% of Canadians are currently in this position.
Savings rates have declined as well. Historically, the savings rate was 7.69% from 1961-2023. However, in the third quarter of 2023, households only saved an average of 5.1% of their income. So, what happened?
Canadians have seen rapid price increases in the last two years. Gas prices, the cost of groceries and housing have all jumped significantly. Your paycheque is buying less than it did, and you may find yourself juggling priorities to make ends meet.
Low interest rates
One contributing factor to higher costs was that interest rates have been at historical lows for the last few years. As a result, many Canadians borrowed because the low rates made the payments affordable. Unfortunately, many borrowers didn’t realize how quickly and how high interest rates would climb.
Rising interest rates affecting mortgage
To tame inflation, the Bank of Canada has rapidly increased interest rates. The idea is that higher interest rates will increase the amount borrowers have to pay for their debt.
The most significant debt affected is mortgage payments. Higher interest rates can increase monthly payments by hundreds or thousands of dollars. Having to pay more for your debts means less money to spend elsewhere. The theory is that this will reduce demand and cause prices to come down. The difficulty is that this strategy can take some time to work, leaving you to manage rising prices and debt payments.
If you’re a saver, higher interest rates result in you earning more on your deposits. A higher return on your deposits may entice you to save rather than spend. So, higher rates can reduce inflation by causing buyers to save instead of spend, which should reduce demand and inflation.
Another contributing factor to our rising cost of living is higher taxes. Additional taxes, like the recent carbon tax, can cause prices to rise since those costs are passed on to the consumer. Increases to existing taxes, such as property taxes and the Canada Pension Plan, mean less money for you to spend.
Insufficient wage increases
The average salary increase in Canada for 2023 has been 4.10%. The annual inflation rate is currently at 3.62%. While wage increases are higher than inflation, the prices of some goods and services are still rising more than the inflation rate. Food prices, for example, increased on average between 5-7% in 2023, and rent has gone up by an average of 10.61% in 2023 across Canada.
If you’re like many Canadians, your financial reality is trying to manage all these ballooning costs while protecting your future. Coping with so many pressures may seem overwhelming, but there are some things you can do to get your finances under control.
From surviving to thriving
You can take several steps to reduce the pressure on your wallet. The first is to find out where your money is going. Make a budget to determine your needs vs wants, and where you want to spend your money. Seek help if you realize your expenses and debt are unmanageable.
Track your expenses
It’s essential to look at your bank and credit card statements for the last few months to see where you’re spending your money. Tracking your expenses will help with your budgeting because it’ll give you a realistic picture of how much money you spend. It can also show you where to trim your expenses, if necessary.
Make a budget
A budget provides you with the numbers you need in order to know if your income is enough to cover your expenses. You can use a budgeting template, excel spreadsheet or budgeting app to help you create a budget and track your spending.
Decide where you want your money to go
Your budget might reveal that you’re using your entire paycheque for living expenses and cannot set aside money for other goals like an emergency fund. In that case, review your expenses to see if there are areas you can cut back or eliminate.
You may be paying for things you don’t use, like subscriptions, cable TV, a landline, or a gym membership. Or, you may find some of your services are expensive, and you could negotiate a better deal. Cell phone plans or insurance are some services where you might find a better deal than what you’re currently paying.
Getting help with your finances
You have some options if you’ve gone through your expenses, created a budget, and found that your paycheque won’t cover everything. You could consider approaching your employer for a raise or seeking other job opportunities that pay more. If you need help with your debt, a Licensed Insolvency Trustee can offer debt relief options.
How a Licensed Insolvency Trustee Can Help
Inflation, interest rate increases, and higher taxes are not the only issues that can affect your finances. Life can get messy, and events such as a divorce, illness or injury, job loss or death of a partner can leave you in an impossible financial situation.
Fortunately, help is available if you’re struggling with your debt. Our team of Licensed Insolvency Trustees at Allan Marshall and Associates are fully trained to help you with credit counselling and government-approved debt solutions to help you get rid of your debt. Please call us at 1-888-371-8900, fill out the online form or email us for a free consultation.