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

Living Debt Free

February 4, 2019

Living debt free is one of the greatest challenges facing Canadian consumers.  We have all become accustomed to having debts, it is normal to owe money on just about everything from furniture to credit cards, lines of credit, loans, car loans, mortgages and even, perhaps the most absurd of all, RSP loans.

The question is not how do we become debt free, that part is relatively easy, the real question is “how do we go about living debt free?”.   Imagine You have a job earning the “Median London Full Time Wage of $48,000 per year” and your spouse is earning $30,000, your family has two children aged 7 and 9 years.  Your total family income is $5,229 per month plus child tax benefit.

Now, let’s assume some living costs and hope that the child tax benefit is enough to cover the gap.

Expense Item Amount Running Balance
*Daycare 1,250 1,250
*Mortgage 1,723 2,973
*Property taxes 350 3,323
*Electricity 220 3,543
*Gas 95 3,638
*Phone 200 3,838
*Cable/Satellite 100 3,938
*Internet 100 4,038
Smoking (one person) 360 4,398
Alcohol 200 4,598
Eating Out 250 4,848
Entertainment/Gym, etc. 200 5,048
Gifts, Christmas, birthdays, etc. 50 5,098
*Medications (not covered) 25 5,123
Food and groceries 1,200 6,323
Dry cleaning 25 6,348
Haircuts, etc. 100 6,448
Clothing 150 6,598
*Vehicle payments 650 7,248
*Gasoline, repairs, etc. 350 7,598
*Vehicle insurance 125 7,723
*House insurance 85 7,808
*Life insurance 150 7,958
*Bank fees 50 8,008
Home maintenance 250 8,258
Total Household Expenses   $8,258

The expenses, listed above, are congruent with expenses reported for families of the size described.  With the family planning to be living debt free many adjustments will be made to the basic living expenses described.  Where would you cut if this were your family?  The expenses marked with the asterisk are either fixed or semi-fixed and not as subject to variance as the other expenses.  The total of all discretionary expenses is $2,535, even if they were all deleted there would still not be enough money in this family’s income to cover all budgetary expenses.

Expense Item Amount Running Balance
*Daycare 1,250 1,250
*Rent 1,686 2,973
*Electricity 220 3,156
*Gas 95 3,251
*Phone 200 3,451
*Cable/Satellite 100 3,551
*Internet 100 3,651
Eating Out 50 3,701
Gifts, Christmas, birthdays, etc. 50 3,751
*Medications (not covered) 25 3,776
Food and groceries 950 4,726
Dry cleaning 25 4,751
Haircuts, etc. 100 4,851
Clothing 50 4,901
*Vehicle payments 650 5,551
*Gasoline, repairs, etc. 350 5,901
*Vehicle insurance 125 6,026
*House insurance 40 6,066
*Life insurance 150 6,216
*Bank fees 50 6,266
Total Household Expenses   $6,266

The expenses, above, assume that they have sold their house and are renting a three-bedroom unit at the average London, Ontario, rental rate.  They have quit smoking and drinking and cut down on eating out, no more gym memberships or other entertainment, they have also cut down on food and clothing costs. 

As you can see living debt free, means making a drastic change in lifestyle and life expectations.  Keep in mind also that the “Median London Full Time Wage of $48,000 per year” is at around the seventieth percentile, meaning that 70% of Canadian “income reporters” earn less than that value. And according to Statistics Canada “In 2016, 20.7 million people had employment income, virtually unchanged from 2015. Median employment income for all workers was $33,300 in 2016, up 1.8% from 2012 but virtually unchanged from 2015.”

Living debt free may not be possible for most Canadians, especially when 46% of us are $200 away from insolvency, according to the Canadian Imperial Bank of Commerce.