Understanding Income & Expense Lines in the Household Budget
When you begin to complete the income and expense lines for your budget try to think in terms of money coming into your house and money going out of your house. Even though a significant amount of your financial information is obtained from your income tax information slips, income tax returns, and your pay cheque summaries, try not to confuse income coming into your house with that of taxable income.
You may receive income that you do not include in your taxable income when completing your income tax returns (for example, payments from private company to reimburse you for expenses that are attributed to business activities but are also personal in nature such as cell phone, automobile, office expenses, etc.). You may also receive alimony, child support payments, Guaranteed Income Supplement, or have certain personal expenses paid for by a trust or corporation.
Note: Establishing your budget using the money-coming-in-and-out-of-your-house approach makes it easier to plan for your future transition into retirement, when your sources of income change and your company may no longer pay certain personal expenses.
Filling in the blanks
The Household Budget summary is comprised of the following four separate sections to help you clearly define your personal money-in-and-money-out profile:
- Sources of Annual Income
- Deductions from Source Income
- Sources of Expenses
- Income Surplus/Deficit
We have outlined each of these sections below so you can correctly input your information in order to achieve a realistic financial snapshot of
- your current personal finances, and
- your current financial surplus or deficit
Note: Many of the expenses are paid monthly so you will have to calculate the annual expenses for each. If the monthly payment is the same each month, then simply multiply a single payment by 12. If the expense is incurred every month and the expense fluctuates, try to calculate the true expense for the previous 12 months by referring to past statements. You can estimate the annual expense by using six months of statements, but be careful the expense is not influenced by seasonal factors.
Sources of Annual Income
Information for many of the income sources listed below can be obtained from your income tax information slips (T4s, T5, T3, etc.), your most recent income tax return and the Notice of Assessment issued by Canada Revenue Agency.
- Salary: On this line fill in your Gross or total Employment Income (Box 14, T4 slips) before any deductions or expenses. If you receive a bonus payment related to your job, record this separately on the Bonus line of the budget. If a portion of your income is comprised of commission income, then record the commission income separately in the Commission line. By separating and accounting for each employment type you will be able to monitor fluctuations.
- Commission: Record commission earnings separately so that you can monitor fluctuations (included in Box 14 and described in Box 42, T4 slips).
- Contract Income: Fees for Services (Box 48, T4A slip), Self-employed Commissions (Box 20, T4A slip)
- Bonus: Record Bonus income separately so you can monitor each year’s amount (Included in Box 14, T4 slip)
- Private Company: Record all payments received from a private company. These would typically be non-taxable payments received to reimburse for expenses (for example, the personal expenses paid for by a private company). This is important if you intend to use the budget for retirement planning and the private company will not be paying the expense in your retirement.
- Director’s Fee: Fees paid by private and public companies on whose Board of Directors you serve.
- Shareholder Loan Repayment: Repayments of shareholders loans should be recorded and you will need to adjust the amount of shareholder’s loans outstanding in your Net Worth Statement.
- Child Support/Alimony: Record all child support and alimony payments received.
- GST/PST/HST Refund: If you receive periodic sales tax refunds, record these amounts.
- Child Tax Benefits: If you receive Universal Child Care Benefits (commonly referred to as Family Allowance Cheques) record these amounts (Box 10, RC62 slips).
- Guaranteed Income Supplement (GIS): Include all supplemental income payments received from provincial and federal governments.
- Interest Income: Record all interest income earned from bonds, Guaranteed Investment Certificates, account cash balances, Canada Savings Bonds, loans made and mortgages held (Box 13, T5 slips).
- Dividend Income: Record the actual amount of dividend income earned, not the taxable dividend amounts (Box 24 and 10, T5 slips).
- Other Income: Income received or earned from Mutual Funds and Exchange Traded Funds (Boxes 49, 21 and 26, T3 slips).
- Rental Revenue: Record the Total or Gross rental revenue received. You will be recording expenses associated with the rental property(s) in the expense portion of this budget.
- Old Age Security: Record the actual Old Age Security payments deposited into your bank account (Box 18, T4A –OAS slips).
- CPP/QPP Pension Income: Record the amount you received (Box 20, T4P-CPP).
- Disability Pension: Record all amounts received as a result of a disability.
- Worker’s Compensation Board (WCB) Income: (Box 10, T5007 slips)
- Private Pension Income: Pension or Superannuation Income (Box 16, T4A slips), Lump sum Payments (Box 18, T4A slips).
- Annuity Income: This income amount includes both the taxable (Box 24, T4A slip) plus non-taxable portions of annuity payments.
- RRIF Income: Include all amounts withdrawn from Registered Retirement Income Funds and Life Income Funds (LIF) (Box 16, T4RAF slips)
- RRSP Income: Include all amounts withdrawn from Registered Retirement Savings Plan accounts (Box 22, T4RSP slips).
- Social Assistance Payments: Record all payments received from government agencies.
- Estate/Trust Income: Record all payments received from estates or trusts of which you are beneficiary (Boxes 49, 21 and 26, T3 Slips).
- Realized Capital Gains: Record all realized capital gains on your investments as money coming into your house. Some members may want to ignore this line, but you should keep in mind that realized capital gains is a form of revenue, just as realizing a capital loss is an expense. How you treat capital gains will depend upon how you mentally account for found money.
Deductions From Source Income:
- Registered Pension Plan Contributions: Contributions you make to a Registered Pension Plan (Box 20, T4 slips).
- Personal Income Tax Paid:The best place to obtain this figure is to use the information on your most recent Notice of Assessment sent by the Canada Revenue Agency (CRA). (Box 22 and 23, T4, T4A-OAS, T4CPP/QPP slips, T4RSP/RIF Slips, Quarterly Income Tax Installments).
- CPP/QPP Premiums:Record the full years premiums (CPP=Box 16, QPP=Box 17, T4 Slips).
- Employment Insurance Premiums: Record the full years premiums (Box 18, T4 slips).
- Company Life Insurance Premiums: Record all insurance premiums paid for through employer programs.
- Long-Term Disability Insurance Premiums: Record all insurance premiums paid for through employer programs.
- Charitable Donations: Record the donations made through payroll deduction programs only (Box 46, T4 slips). Donations you make in addition to those through payroll deduction are listed under expenses as a separate line item.
- Union Dues: Record all union expenses incurred through out year (Box 44, T4 slips).
- Professional Fees: Record all professional fees paid during the year.
- From Your Income Tax Notice of Assessment: Keeping track of the following information that is supplied on your annual Notice of Assessment, is helpful in planning your budget for future years.
- Unused RRSP Contribution Room: Keep a record of the dollar amount you are able to contribute to a Registered Savings account.
- RRSP Contributions Not Deducted: If you have contributed to an Registered Savings account, but you have not deducted the contribution on your income tax return, you should keep track of this amount for future use.
Sources of Expenses
Many of the expense items listed below are fairly straightforward and simple to understand. Simply refer to your account statements (bank, credit card, investment accounts, etc.) for the detailed information.
- Mortgage Payment/Rent:
- Property Taxes:
- Strata Fees:
- Property Insurance:
- Heating Oil/Gas:
- House Line:
- Long Distance:
- Bottled Water:
- Lawn Care:
- Capital Assessments:
- Loan/Lease Payment:
- Insurance: Oil/Gas Expense:
- Banking Expenses:
- Safe Deposit Box:
- School Fees:
- Children’s Sports:
- Children’s Dance/Theatre:
- Children’s Allowance Expense:
- Books, Videos, etc.:
- Movies, Concerts, etc.:
- Wine, Beer, etc.:
- Entertaining Expense:
- Club Memberships:
- InvestingForMe Membership:
- Home Office Expense:
- Hair Expenses:
- Pocket Money:
- Birthday Presents:
- Holiday Season Expenses:
- Bus/Travel Expenses:
- Ferry Expense:
- Dry Cleaning:
- Line of Credit Payments:
- Loan Payments:
- Investment Costs: Add up all of the commissions paid, annual management fees, Mutual fund and Exchange Traded Fund expenses, etc.
- Registered Account Fees:Many Registered accounts charge an annual administration fee.
- Donations: Donations made in addition to those deducted from your regular pay cheques
- Vacation/Travel: These are amounts you have spent on holidays and travel, not savings for holidays and travel.
- RRSP Contributions: Treat these contributions as an expense.
- TFSA Contributions: Treat these contributions as an expense.
- Savings Contributions: Treat these contributions as an expense.
- Realized Capital Losses:Record all realized capital losses on your investments as money going out of your house. Some members may want to ignore this line, but you should keep in mind that realized capital losses are a form of expense, just as realizing capital gains is money coming into your house.
- Post Secondary Education Expense: These are expenses you pay for your education expenses or those of a dependent. If the student is a dependent do not include expenses that are paid by the student personally or are paid by RESP account funds withdrawn by the student.
- Life/Disability: Private insurance premiums paid.
- Medical/Eye Care: Eyeglasses and prescription expenses not covered by your benefit plans.
- Business Expenses:
- Accounting Expenses:
- Support Expenses for Family Member:
- Child Support/Alimony
- Veterinary Expense:
- Drug Expenses:
Because you are treating your RSP, RESP and Savings contributions as expenses, your budgeting goal should be to finish with a surplus or zero balance. If you are not contributing to your savings, RSP and RESP accounts, then the final dollar amount on the Income Surplus/Deficit line will help you to understand what financial wriggle room you have.
Note: Once you have completed the budget, you can play with each line to see how your Surplus/Deficit number will improve if you can reduce those expense items.