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111 Waterloo Street, Suite 310
London, ON N6B 2M4

Budgeting Perspectives

November 15, 2022

Budgeting is an important part of any financial planning, whether you are planning for a dinner party, retirement, or any other event.  Budgeting, done properly, removes surprises and replaces them with a “plan” and a “structure”.  A couple of years ago, one of our tech savvy clients provided our office with an excel spreadsheet budgeting tool that allows for simple forecasting as well as accurate tracking.  We were told that we should feel free to share with anyone else who may find the tool useful – if you would like a copy, drop an email into the office at [email protected].

Budgets can be manipulated, either positively or negatively, and when constructing one we really to be very mindful of all factors that come into play.  When working on a family budget it is important to involve all family members, even children.  Children can put pressure on family budgets and their needs must be considered, they also need to learn about money and paying bills, and they are barely being taught basic maths in schools, so the more preparation you can provide your children the better.

Credit Counselling Perspective

Non-Profit Credit Counselling Agencies, in Ontario, are registered Collection Agencies.  They are paid commissions by their clients, including members of the Canadian Bankers Association.  The typical commission is about 22.5% of the monies they collect in addition to monthly administrative fees that are passed on to their clients – so quite a lucrative business.

From a Credit Counselling perspective the goal is to encourage clients to reduce their spending to the bare necessities, similar to the TV show “Til Debt Us Do Depart” hosted by Gail Oxlade.  Any left over funds, after paper reductions, are deemed to be available for debt reduction.  Unlike the TV show there is no tacit reward, no $5,000 gift. 

The Credit Counsellor considers all income of the family including Trillium, Child Tax Credits, Child Support and HST rebates, and goes over estimated living costs and removes such items as eating out, alcohol/pot purchases, entertainment and sporting activities, smoking, unnecessary trips in the family vehicle, and so on. 

The client is then to pay over to the Agency a monthly amount equal to the face value of their debts divided by sixty (60) payments.  So, a total debt of $40,000 would require monthly payments of $666.66 plus the administrative fee of about $50.00 for a total of $716.66 per month.

Superintendent of Bankruptcy Perspective

The Superintendent of Bankruptcy take a divergent approach to budgeting which starts with the assumption that a threshold value, established by the Government’s Low Income Cut Off, is the base amount required for a family to meet its basic needs.  Any amount the family earns about the threshold, not including Trillium, Child Tax Credits and HST rebates, is considered to be “surplus” to the basic needs of the family unit.  This surplus may be divided equally between the Bankrupt individual and his or her creditors.

Other checks and balances are in place that allow for the recognition or extraordinary, but necessary, expenses, such as medical, work, or legal related costs, support to estranged family members and so on.  Other provisions allow room for negotiation through a process called mediation, or by court order.  At the end of the day, the codified process of calculating surplus income leaves more money in the pocket of the Bankrupt than the “voluntary” system used by Credit Counsellors.

Final thoughts

Budgets are great tools to project what our living are and will be and how we might use our resources to achieve particular ends.  We live in extremely uncertain economic times, bought on by deliberate radical political change.  It is hard to predict how long inflation will continue to impact our lives, and homeostasis will return.  Incomes have fallen behind living costs for decades, and the gap between income and expenses has grown exponentially in the past five years. 

It remains to be seen what will happen with housing costs, it seems likely that prices will continue to fall until they plateau and remain at the same level until incomes start to catch up again.  It also seems likely that interest rates will remain around historical averages for an extended period, to drop them back down will undoubtedly increase prices and debt again.  In the meantime, folks caught up in the buying frenzy will need to deal with debt issues other than mortgages in order to survive the rate increases.

We can help you get your budget back on track and reduce your debts to manageable levels.  Just call 519-646-2222 to arrange your free consultation.