Did you know that only 51% of Canadians have a budget? With housing affordability at historic lows, caring for your personal finances is more crucial than ever. This article discusses why you need a budget and why personal finance is important to buying a home in Canada.

What is the Importance of Personal Finance?

Half of all Canadians don’t care for their finances enough to build a basic monthly budget. Yet, knowing where you spend your money enables you to plan your savings and investments. In fact, budgeting is a primary factor in successfully managing finances. So why is it that Canadians find it so hard to plan for their financial future?

Woman in a group with her hand raised to ask a question

Why isn’t personal finance taught in school?

If you Google “Why Personal Finance”, the top three search items are:

  • … finance is important
  • … is crucial in everyday life
  • … should be taught in high school

The fact that the third-highest search term asks why it should be taught in school lets us know that Canadians believe that it isn’t taught in school. This also tells us that the consensus is that personal finance is important and should be taught in school. 

How can you learn more about personal finance?

*Ahem* A great place to start is with this Newsfeed. The (ever so humble) author of this Newsfeed on personal finance is an expert with years of experience helping Canadians plan their finances and buy their first homes. But alas, there are several great resources on this topic aside from the gracious author of this post. Some of our favourites are:

  • Dave Ramsey – Perhaps the most well-known personal finance guru, American Dave Ramsey and his radio show, podcast and multiple books are a great source of financial knowledge
  • Million Dollar Journey – This Canadian Newsfeed has been featured on several major media outlets and is an excellent source of financial tips for Canadians
  • Maple Money – Written by Tom Drake, this Newsfeed site focuses on how to make, save, invest and spend money wisely

Wherever you decide to learn how to control your finances, knowing the importance of managing your finances is the first step. As you improve your financial situation, you’ll be better prepared to plan for future goals such as buying a home or retirement.

How Personal Finance Affects Buying a Home

Saving for a down payment

For Canadians trying to buy a home, one of the most challenging factors in their way is often cited as building a down payment. With home prices in Canada averaging $637,763 as of August 2022, the minimum down payment for the average home in Canada is $38,776. In areas such as the Greater Toronto Area, that number jumps significantly. 

Without a budget, planning savings towards big goals such as buying a home is more challenging. A budget allows you to set savings goals that help you reach home ownership on a predictable timeline. Without having a budget, you may not know how much money you’re spending and so not saving monthly. 

When you’re planning to buy a home, the first step is to speak with a mortgage broker and have a home buying assessment. This assessment allows you to gain a higher level of understanding of your future buying power. Furthermore, working with a mortgage broker can help you create a personalized home buying plan. Combining your home buying plan and your current budget, you can predictably save the required down payment and closing costs for your first home purchase.

Credit score dial with needle pointing to excellent

Building credit

Maintaining an excellent credit score is a crucial part of buying your first home. Your credit score has a direct link to how well you manage your personal finances. The more debt you have, the less money you have available to pay your bills and increase your savings. As debt increases, you could start missing payments which has a massive impact on your creditworthiness.

Making debt payments on time is only one factor in your credit score. Another major factor is the total utilization of lines of credit and credit cards. If you carry balances higher than 30% of your balance, you could start seeing your credit score go down.

So how does managing your personal finances have anything to do with your credit? If you’re not following a monthly budget, you could find that you spend more than you earn. This difference is usually made up by taking money from your savings (and decreasing available down payment) or over-reliance on credit. 

Ensuring you budget wisely, enables you to plan your monthly spending, reduce your reliance on debt and increase your credit score. All these factors, taken together, make it easier when you’re ready to buy your first home. 

Steps You Can Take Today

  • If you don’t already have a monthly budget, check out this article and download the monthly budget template to begin planning your personal finances. 

  • Connecting with a mortgage broker and a financial planner can help you plan your first steps towards home ownership and start planning your savings and investments towards your goal. 

  • Set and track your financial goals. Sharing your goals with those who care about you most, like your closest friends and family, ensures that they’ll help you keep accountable and increase your chances of success.

  • Keep reading about personal finance and practise good spending habits.

  • Comment on this article to get answers to your questions and sign up for regular updates from our author.

About the Author

The column's goal is to level up your financial knowledge and help you avoid common pitfalls and mistakes along the way. Although money management sometimes seems like an intricate task, it doesn't have to be. The advice here is common sense and simple to follow. The first step to a better financial future starts here, and it's never too late to begin. Adam Stapley is a Mortgage Broker with Pineapple Financial and author of the personal finance Newsfeed CanadianFinanceGuide.ca. He is intensely passionate about helping Canadians build wealth through the power of real estate. Many of the articles in this column come from Adam's experience assisting Canadians to understand and shape their personal finances. Pineapple Financial Lic #12830 CanadianFinanceGuide.ca adam@canadianfinanceguide.ca