People are always asking me about what they should be spending in various areas of their budget. I don’t like giving specific answers because there are so many variables: where you live, your priorities, your income.

Speaking of which, I know I’ve said this before but I’m going to shout it this time: YOUR GROSS INCOME IS NOT YOUR IINCOME. Your gross income is yours and the government’s income. If you want a budget that works, you have to work with your NET income.

If you gross $60,000 a year – the average Canadian FAMILY earned just over $66,000 in 2007 — you don’t have $5,000 a month to spend because:

• If you live in B.C. you have to give $12,455 to the government
• If you live in Alberta you have to give $13,491 to the government
• If you live in Saskatchewan you have to give $15,141 to the government
• If you live in Manitoba you have to give $15,317 to the government
• If you live in Ontario you have to give $12,957 to the government
• If you live in Quebec you have to give $16,518 to the government
• If you live in New Brunswick you have to give $15,679 to the government
• If you live in Nova Scotia you have to give $15,590 to the government
• If you live in P.E.I. you have to give $15,353 to the government
• If you live in Newfoundland you have to give $15,189 to the government
• If you live in N.W.T. you have to give $12,568 to the government
• If you live in the Yukon you have to give $13,240 to the government
• If you live in Nunavut you have to give $11,717 to the government.

(BTW: According to the book Tax Facts 15, income taxes account for only 34.7% of the taxes the average Canadian family paid in 2007. Ouch!

Okay, let’s take Manitoba as our example. Instead of $5,000 a month, AFTER TAXES your NET income – would be $3,723.58.  Hey, wait a minute. That’s not your TAKE HOME PAY. If you have deductions your TAKE HOME PAY WOULD BE LESS. You might have to pay employment insurance, CPP/QPP, or other deductions. And if you get company benefits – health benefits, for example – that are taxable, they’re going to take even more tax off your cheque.

Let’s face it, if you earn $60,000, you can’t just divide by 12 and think that’s your income. And if you’re basing your budget – and more importantly, your thinking – on your GROSS income, it’s no wonder you’re going deeper and deeper into debt each year.

So, if you make $60,000 a year and bring home $3,600 a month after deductions, how much should you spend on housing. According to the Gail Pie – and this is only a guide, people, it’s not written in stone – you should spend no more than 35% of your income on rent/mortgage payments, taxes/condo fees, heat, electricity and maintenance. That tops you out at about $1,260 a month.

Does $1,260 seem like a lot or a little to you? With rents and house prices eating a larger and larger portion of our income, we’re becoming numb to the impact on our ability to spend, which ultimately pushes us to use our credit.

According to the Canadian Real Estate Association, the average house price in June this year in Canada was $341,100.

Assuming you put down just 5% as a down payment and amortized for 25 years at 5.5% your monthly mortgage payment would be $1977.94. So you couldn’t afford the average house. Let’s say you got into the market a while ago, and had a $200,000 mortgage, your monthly payment would be $1220.78, which would leave a whopping $40 to cover your taxes, heat, electricity and maintenance. Hmmmm.

But wait, Gail, you said that the percentage wasn’t written in stone.

It’s not. If you can find a way to get to work without spending 15% of your budget on transportation – which would be $540 a month – you could lump the rest into your housing budget. Or if you had no debt, you could lump that 15% into your housing budget, or your transportation budget, or your LIFE budget.

Most of us aren’t don’t or can’t hoof it to work every day, so we have a car and with it a car payment, insurance, maintenance and fuel costs. According to the Stats Man, the average Canadian household spent $9240 a year – or $770 a month – on transportation. But this was back in 2006 (the last year for which he has numbers) before gas was over a buck a litre, so we’re spending a tad more now, me’thinks.

It’s getting harder and harder to make ends meet, while having at least some of the things we WANT.  There’s a better TV, a better cell phone, a better digital camera. How about a holiday down south, or a trip to Europe, or a boondoggle to Vegas? And since the styles of clothes, shoes, handbags keep changing, we have to buy at least a couple of new things each season just to stay current, especially if we have a visible job. And those darned kids just keep growing! Never mind what we have to put out for skating lessons, piano lessons, hockey equipment… the list is endless.

Retailers know how to help us part with our money. But they’re always looking for new ways. According to a Cornell University team, if restaurants use a numerical price format without the accompanying “$” symbol, diners spend more on a meal. I guess without the dollar sign there as a reminder that we’re spending MONEY, we forget. Really?

Okay, so you’re not as rich as you think. Your housing costs are eating a bigger part of your budget. Transportation costs are soaring. Demands on our pockets keep growing and retailers are coming up with new and improved ways of parting us from our hard earned moolah. What’s a person to do

Back to basics boys and girls:

Make a budget. You’ve got to WRITE IT DOWN. And I don’t mean in a notebook, or on a post-it note. I mean on a BUDGET WORKSHEET.  Start by looking at your June bank statement and using only the income you put in the bank. Never mind that some months you earn commission, or your partner does an extra job and brings home a little more, or your deductions fall because you’re close to the end of the year and you’re all paid up. If you have a fluctuating income, then you’ll have to build a two-tiered budget: one for the basics when the well is dry, and one for the extras when the money is flowing.

Get rid of your debt. If you have no debt, you have more money to do the things you want to with your family. If you have debt, get it paid off. It doesn’t matter what you have to give up or how much harder you have to work, GET OUT OF DEBT.  Once you’ve figured out your budget, if the amount allocated to debt repayment means it’ll take more than three years to be debt free, you MUST find a way to increase your debt repayment amounts.

Dump the expenses that you think you HAVE to have, but aren’t related to keeping body and soul together. Once upon a time there were no cell phones and we didn’t die. Once upon a time there was no cable and we didn’t die. Prepared meals didn’t exist.  Coffee was something we brewed at home. Eating out was for special occasions. Nails were something we grew and food never had the word “junk” in front of it.

Now we spend money on energy drinks, buy sixty-two versions of cleaning products (whatever happened to a mop and bucket?) and wouldn’t dream of NOT buying our lottery tickets because if our numbers came up we’d be mad as heck! We throw huge weddings, going thousands into debt for ONE NIGHT of fun and frolic. We throw ridiculous birthday parties for our kids, inviting whole classes so no one will be offended. We spend buckets of money to try and not look old, lose weight, be healthy. (It’s not fooling anyone but you. Sorry.) And we believe that if the deal is good enough, it justifies spending money we haven’t yet earned.

If you want a life that’s not riddled with stress, you’ve got to know where you’re going and how you’re going to get there. It doesn’t mean throwing wads at the wall and hoping something sticks. If you don’t have a written budget that you’re following like the gospel, then you’re a Wad Thrower and you’re doomed. ‘Course you won’t have to wait to die to go to hell; you’re there now!