The Tax Blog for Smart Canadians

Tips and tricks for Canadian tax filers at every stage of life from UFile's tax expert Gerry Vittoratos



The real cost of everyday expenses

by UFile Team Équipe ImpôtExpert | Mar 18, 2020   Comments:

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The staple of personal finance is being able to control everyday expenses. We think of these expenses in terms of dollars and cents, but there are factors that we neglect to consider. Read on…

Taxes on everyday expenses

We all know that when purchasing any consumer product, we have to pay sales taxes. The rates vary between provinces but in some of them, combined taxes can reach 15%. It doesn’t sound like much until your purchase hits triple digits. For example, if you buy a new TV for $1,000, you will have to pay an extra $150 in taxes in certain provinces. It’s not exactly a negligible amount.

Some items are exempt from sales taxes, and it pays to know which ones. We wrote about this a little while ago.

Everyday expenses in relation to your time

A factor that is often neglected when spending money is the time it takes to earn it. We tend to see our spending purely as the monetary cost of the purchases we make. But how much time did you have to work to earn the amount needed for a given purchase?

Your salary can be broken down to an hourly wage. It’s simple math: take what you make per week and divide it by the number of hours worked. Once you have that number, you can start to think of your expenses in terms of how much time it took you to earn the money to pay for them.

Let’s try an example: you’re a diehard hockey fan and you decide to go see your favourite team live. In Canada, your ticket costs between $66 and $125 on average. If you add the cost of food, we can realistically say that this hockey game can cost $100 for 2 to 3 hours of entertainment. The average hourly wage in Canada is close to $27 per hour. This means that it will take you 3 hours and 45 minutes of work to be able to pay for the ticket and food, which is essentially half a day of work. Is it worth it? It’s your call, but thinking of these costs on an hourly basis really makes you consider not only the monetary aspect, but also the amount of effort it takes you in your job to afford these purchases.  

Other time factors affecting your hourly wage

The example above is very simplistic and doesn’t consider other time factors that can affect your hourly wage, such as your commute time to work. We often forget that our morning routine and our commute add to the time we dedicate to our work, even if this isn’t time spent working. Adding this time to your work hours gives you your “real” hourly wage as championed by Vicki Robin in her groundbreaking book Your Money or Your Life.

The average hourly wage is based on a standard 40-hour workweek. The average commute time in Canada is 24 minutes, with 1 in 5 people spending at least an hour commuting to work. Assuming that your morning routine takes an hour and your total commute time is an hour per day, your hourly wage is now based on 50 hours (adding 2 hours X 5 days). Instead of the average rate of $27/hour, your hourly wage now drops to $22/hour. That hockey ticket purchased earlier now represents 4 and a half hours of work. Is it still worth it, or can you find more cost-efficient entertainment?

Vicki Robin also introduces us to the concept of life energy, which is our allotment of time here on earth, the hours of life available to us. When we work, we trade our life energy for money; therefore, we must do this in the most efficient way possible since our time is limited.

Your taxes and your time

Speaking of time and expenses, did you know that it takes almost 6 months to pay all of your tax obligations for the year? The annual Fraser Institute study takes into account all of the taxes you pay every day such as income tax, sales tax, payroll tax, property tax, automobile tax (fuel, licence, carbon) etc. For the average Canadian family, the tax freedom day is June 14. This means that you only stop “working” for the various levels of government in the second half of the year.

Knowing all of this, and seeing the importance of factoring time when spending your hard-earned dollars, we hope that this article will change your viewpoint on everyday expenses.

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