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2024 Changes that affect your bank accountMonday, January 22, 2024
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A new calendar year has been changing our bank account amounts for a long time, from RSP maximums indexed to inflation to increases in Canada Pension Plan contribution rates.
2024 has some standout amounts that you should be aware of, in addition to the regular, steady changes.
WHEN YOU'RE WORKING
Canada Pension Plan (CPP) contribution amount- the CPP contribution rate for working Canadians has been increasing since 2019, and 2024 is a big jump in the payroll deductions. The employer & employee contribution rate has increased to 5.95% of contributory earnings and the maximum pensionable earnings have increased to $68,500. In dollars, that’s a maximum of $3,867.50 from an employee and a matching amount from the employer; if you are self-employed, that’s a maximum of $7,735.00. CPP2 is new- this contribution covers income from $68,501-$73,200. Employees and employers contribute 4% to a maximum of $188 each and self-employed Canadians contribute up to a maximum of $376.
For perspective, in 2020, CPP maximum pensionable earnings was $58,700 and contribution rate was 5.25%. that calculated through to a maximum payment of $5,796 to CPP (either split between employer & employee or fully paid by a self-employed Canadian). Four years later, we’re up to CPP maximum pensionable earnings of $68,500, a 5.95% contribution rate and a maximum payment of $7,735. Those are increases of: 17% in the maximum pensionable earnings 13% in the contribution rate 33% in the dollar amount of the contribution
If your bank account is feeling a little dented, those numbers help explain a few of the dings.
The increases in CPP contributions are connected to increases in the CPP payments that you will receive in retirement. The multi-year increases were designed to take CPP retirement payments from 25% of maximum pensionable earnings to 33%......an increase in retirement payments of 32%.
IF YOU HAVE CHILDREN
The Canada Child Benefit (CCB) has a cost of living adjustment that is calculated in July every year. For July 2023- June 2024, the increase was 6.3% (the Consumer Price Index as of mid-2023) and 2024 payments will increase in July, based on the CPI calculated at that time. Why July? CCB amounts are based on net family income. By scheduling the increase for July, the government is using the most recent income data that they have for families. Another great reason to file your tax return!
WHEN YOU'RE SAVING
2024 RSP maximum- 18% of earned income to a maximum of $31,560 (corresponding income of $175,333). If you contribute the full amount monthly, that’s $2,630 per month.
Reminder: before making any changes to contributions, check any scheduled deposits that you have happening through a group plan at work so that you don’t over-contribute. File your income taxes on time, then check your Notice of Assessment (NOA) from CRA to see how much contribution room you have available for 2024. The amount on your NOA includes any previous contribution room that you haven’t used plus any new room generated by your 2023 income. Make changes to your deposits as needed.
2024 TFSA maximum- $7,000 of new contribution room. If you have never contributed to a TFSA, and you were born in 1991 or earlier, you have cumulative room of $95,000.
Reminder: do not over-contribute! Many people have more than one TFSA account, and it’s easy to over-contribute. Your TFSA limit is a global limit- no matter how many TFSA accounts you have, your limit is your limit.
Recommendation: review the purpose of your TFSA. Is this long-term savings? Do you want growth from this money? Is it intended to fund a specific purchase, like a new car or a house? Is it your emergency money? The investments inside your TFSA should match your goals; the risk level and volatility should be chosen after you’ve chosen your goal for the money in the TFSA.
RECEIVING CANADA PENSION PLAN (CPP)
CPP payments are increased once a year using the increase in The Consumer Price Index (CPI). This keeps your CPP amount equal to inflation (as best as possible, depending on your spending patterns). What does that mean? It means you can still buy the same amount of stuff with your pension this year as you could last year, even though prices have increased. Your CPP amount has kept up with the increase. This is a valuable feature in any pension, investment return or income stream. The CPP increase for 2024 is 4.4%
RECEIVING OLD AGE SECURITY (OAS)
OAS payments are adjusted quarterly for inflation, also using the same CPI as CPP. The increase from Jan-March 2024 is 0.8%.
WHAT IF CPI IS NEGATIVE- DO MY CPP & OAS PAYMENTS DECREASE?
No. If the CPI is negative, payments remain level. This is true for all government payments that depend on CPI adjustments.
More information:
Canada Child Benefit information
CPP payments- 2024 inflation adjustment
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How to make decisions about large amounts of cash in your bank accountWednesday, December 6, 2023
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It might not seem like a large bank account balance would be a problem, but it often is. Many clients hire me specifically to plan to deal with this issue.
Whether it's your job that gives regular bonuses, your spending is far below your income or you received a large one-time amount, cash in a bank account casuses pressue to make a decsision. The right decision.
Some general considerations if you are in this situation:
If the bank or any other advisor is pressuring you to make a decision or purchase a product, I recommend getting another opinion. There is rarely a situation that demands a decision on money like this before you are ready. On the other hand, there are very real consequences to you to making a decision that doesn't align with your situation, goals or values.
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Organizing your ExpensesMonday, January 16, 2023
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If organizing your finances has moved to the top of your priority list, that’s great news. If you’re feeling confused & frustrated about your finances and would rather pull your own eyelashes out instead of dealing with them, but, it’s a new year and tips are everywhere you turn, I’m glad you’ve read this far.
The majority of work that I do with clients involves the foundational work related to money in/ money out. You need to know these numbers before you start making changes. You need to know what’s happening now to make effective choices that will move you to a better place over time.
If you need a new look at your money and are ready to do some math, this post will give you a framework for understanding where you are now and what changes will improve your situation.
Step One: knowing how much is coming in and when
You need to know how much is deposited to your bank account and when that happens. When we try to untangle our finances, we often talk about our salary. In this context, that is not a useful number. None of can make choices on the full amount of our salary. There are deductions before any money lands in our bank account. Sometimes the deductions are large. And valuable.
I recommend that you look back at a payslip from 2022- look for the net amount deposited, or if you have your last payslip, find the year-to-date (YTD) net amount. That will tell you how much lands in your bank account. This is the amount that you need to focus on when you’re asking questions about what’s affordable. Draw out the timing of the deposits so that you can compare your deposits to when your expenses happen.
See the chart below for a list of common deductions and an explanation of the benefits to you. Need more clarification on what's happening in your specific situation? Contact Sara for an appointment by booking an initial consultation here or send an email
check back on Jan 23 for Step Two: finding your fixed expenses
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How to Support Your Small Changes and Your Big ChangesWednesday, October 18, 2017
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How to Support Your Small Changes and Your Big ChangesThis is Part I in a 3 Part series: How to Actually Make the Changes You WantChange is hard, and can take a long time. We make goals, promises and wishes, then surrender to our routines rather than step onto a new path. Your goals aren’t going to go away; this can be the time that you meet them.
Take stock of how 2017 has gone for you so far. Did you make New Year’s Resolutions in January? If you did, how have they worked out? Evaluating the success and failure of past ideas/goals/ commitments has value for us. If you made a resolution that you soon abandoned, it is helpful to go back and take a closer look. Maybe the resolution didn’t matter enough to you to commit the time and energy to make it happen. If that’s the case, let that resolution go and move your attention somewhere else. If the resolution does still matter to you, take a look at what else you might need to make it to the goal. Resolved to cook at home more and eat out less but you haven’t so far? Sometimes our goals need to be broken down into steps that we can turn into habits. You might reach that goal if you signed up for a regular email recipe, chose two a week to cook on your least-busy nights of the week to start and planned to eat chicken burritos every Wednesday (or whatever meal is most popular and easy to make in your house). Now you’ve turned 7 decisions made daily into 5- Wednesdays are already decided, one day a week you’ll pick 2 recipes to try, and you need to sort out 4 other dinners. Once that pattern becomes a habit, move further into the remaining days until you’re happy with your level of eating out vs eating at home.
For the resolutions that you’ve kept, evaluate the effect on your life. Did the change meet the goal that you thought it would? If you committed to exercising more but the early-morning gym run is leaving dark circles under your eyes, perhaps a change in timing is needed. We can’t always predict the outcome of meeting our goals. We assume that getting what we wanted is good, and it can be. Sometimes it means we have to make other decisions or adjustments to meet our bigger goals. In a situation that took several years to unfold, spouse A was offered a job approximately an hour from Spouse B’s job. It was a good offer, in a location that both wanted to live in. Spouse A took the job, and Spouse B worked on negotiations with his current employer to change his sales territory to include the new home location. He thought the new territory would leave him closer to home 3 days a week, and the commute to the existing territory would be manageable for 2 days a week. After setting this up, he realized that the territory was significantly larger than he thought, meaning he was now travelling an hour from home in 2 directions, instead of one; the new territory wasn’t generating the sales he anticipated, and he liked driving less than he thought. The goal was achieved, but once it was, further evaluation was needed. Don’t shy away from making decisions that may be adjustments of previous decisions.
Questions to ask: What did I think my life was going to look like this year?
What areas are different from my expectations, what areas line up with my expectations?
If you had trouble answering the first question, spend some time thinking about what your goals and expectations are. We all have them, it can be difficult to pull them out of a busy life into conscious thought.
To discuss your goals, progress and changes and develop your own plan, contact Sara at 519-569-7526 or [email protected] |
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Knowing your Own Bottom LineWednesday, October 11, 2017
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Knowing your Own Bottom Line
Changing employers, contract positions and total career changes have become a normal part of our landscape. Today, we look at the range of information, impacts and decisions that go along with that. Some information and questions are obvious:
Something that may be less obvious: Reviewing the above only makes sense if you know what your own needs and goals are. If your current position pays enough to meet your needs and goals, moving to a higher pay, less flex time position may not make sense for you. If you haven’t developed your own plan, there may be a temptation to take the higher pay only to realize that it wasn’t worth it to you later. Changing employers or careers can also generate options related to the benefits that you are leaving. Questions about what to do with a Defined Benefit pension plan need careful analysis that draw in your personal situation. There is often a time limit to make a decision about commuting (moving your benefit amount out of the plan and managing the money yourself) or remaining in the plan. The impact of this decision may not be felt for many years. Sometimes, you don’t have a choice in the change; layoff or company closure forced the change. Understanding your personal goals and financial situation gives you the information that you need to decide what your next step looks like. In the midst of change, it can feel impossible to call a time-out to review your needs and goals. Without the relevant information and analysis however, you may find yourself writing a ‘ladder against the wrong wall’ chapter in your life. “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.” Stephen R. Covey
To start your plan, contact Sara at 519-569-7526 or [email protected]
10 Tips for Changing Careers without Losing Your Mind
When Does It Pay to Go Back to School in Midlife? This is a U.S. based article, however, the questions are relevant.
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Getting and GivingFriday, October 6, 2017
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Getting and Giving
On this Thanksgiving weekend, many of us will have an opportunity to spend time with family and friends. This holiday can be a time to reflect on what we are thankful for, or what we have received. Christmas is only ** days away. Pre-Christmas can be a season of charitable solicitations, a time when many focus on giving to family, friends and charities. Recent Statscan statistics reveal that 84% of Canadians claimed a charitable tax deduction, and 44% of Canadians volunteer their time. Like other areas of your life, taking the time to develop your giving plan can have significant positive impact for you and those that you help. A meaningful giving plan starts with a discussion about what issues you care about and why you want to support them. What does community mean to you? What are your views on international versus local ventures? Answers to these initial questions will drive the rest of the dialogue about where and how to have an impact on issues that matter most to you. A deep discussion about your values will connect your giving to the rest of your plan; income, spending, investments and estate planning will all start to reflect your values about who and how you want to be in your community. To have a conversation that starts with your interests and goals, ending with an executable plan, instead of starting and ending with tax strategies, contact Sara at 519-569-7526 or [email protected]
Places to Go to Stretch Your Thinking:
Questions and Framework to Evaluate Your Giving
Volunteering and Charitable Giving in Canada
An Answer to Some Headlines Generated by the Above StatsCan report
A Journey from Charity and Donors to an Investment Fund
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Planning for Special NeedsWednesday, September 27, 2017
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Planning for Special Needs
Creating and maintaining a family always comes with unexpected highs and lows. The birth of a child is a joyous event, regardless of the challenges. When a child is born with special needs—whether developmental or medical—parents can face unique challenges that can initially feel overwhelming. When first learning their child has special needs, parents face a steep learning curve, says Kathy Netten, a social worker with the complex care program at The Hospital for Sick Children (Sick Kids) in Toronto. Parents need to learn medical terms, how to navigate the healthcare system and how to advocate effectively. Because many conditions are discovered in infancy, they are often learning how to be parents for the first time. And, they may also be grieving. Sick Kids has over 50 social workers like Ms. Netten who provide counselling, therapy and support services for families with special needs children. “We are available to help parents find resources and work effectively with care teams, to problem solve when there are challenges, and for the very difficult decision-making,” she says. From her experience, Ms. Netten says parents will often push themselves to physical and mental exhaustion to benefit their child. “The key is to find a balance between hope and despair, even under the most difficult of circumstances. Hope will allow parents to take care of their own emotional, psychological and spiritual needs so they can care for the developmental and medical needs of their child.” Parents must also be mindful that financial questions are not forgotten at this most critical time, only to become an additional burden later on. While it can be difficult to think about long-term financial concerns, a firm financial foundation will not only protect your family, it will also free you to focus on the physical and emotional needs that only you can meet. For parents of special needs children, this can be even more important. A typical family will see income increase over time. However, for families with special needs children—especially those that have the most complex needs—literature shows that income actually decreases. Medication and equipment costs, time taken from work, and lack of knowledge of available assistance programs are all contributors. A comprehensive financial plan for families in this situation will:
To review your situation and explore how a personalized plan would benefit your family, please contact Sara at 519-569-7526 or [email protected].
Originally published by Financial Planning Standards Council. Adapted with permission. |
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Saving and TaxesWednesday, August 9, 2017
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Saving and Taxes
Spending less than you earn is an important skill that we all need. We all have unexpected expenses, larger purchases that we need to pay for, and we will eventually stop earning money from our careers and live on our savings. Recent government proposals for tax changes to small businesses and corporations have raised questions about savings and taxes; some of the proposals seem to punish for saving. Unravelling the proposed changes, their impact and why you need to save is a process. Today we’ll start with the savings.
If you are starting a savings plan, there are several steps that I recommend: Define different types of savings
Ideally, your emergency and short-term savings will have different locations than your main bank account ie- separate bank accounts, a TFSA, a non-registered investment account. Differentiating the location helps you to keep the purpose separate (and you are less likely to spend the money on something else).
Match the Type of Saving to the Type of InvestmentDifferent types of savings need different types of investments.
Separating your savings based on purpose has many benefits: organizing your day-to-day cash; ensuring money is available for larger expected purchases and protecting your family and finances in an emergency. To apply this to your situation or discuss further, please contact Sara at 519-569-7526 or [email protected] |
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TFSA for Incorporated ClientsWednesday, July 5, 2017
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TFSA for Incorporated ClientsA follow-up to the Question Wednesday in May: Incorporated clients with surplus cash may have received advice against opening a Tax-Free Savings Account (TFSA) account. This week explores why that may be, and what factors go into the TFSA decision. A quick primer on what some terms mean and how they are used here: Corporation- for the purposes of this blog, I am referring to privately-held operating companies or investment holding companies. I am focusing on the surplus cash that has been generated by the company/ deposited to the investment holding company from the operating company. Surplus cash- any money that the corporation owner doesn’t expect to use for at least 3 years. TFSA- introduced in 2009 by the Federal Government, these accounts allow for deposits, to a yearly maximum amount. Once in the TFSA, the owner can choose how the money is invested. Investment choices are broad, and similar to investment choices within an RSP. TFSAs are owned by a single person; they are not owned by a corporation or jointly with another party. You do not receive a tax credit for your deposits, however, you do not pay income tax on the money when it is withdrawn from a TFSA. When a withdrawal is made, that amount can be re-deposited to the TFSA in the next calendar year. For more information on TFSA rules, see the link below. Surplus cash in a corporation can be invested for longer-term gains. Investment choices are very broad. Money that stays in the corporation is taxed at the corporate tax rate. Currently, corporate tax rates are lower than personal tax rates, which allows for more money to be invested initially than if the cash were withdrawn from the corporation to be deposited to a TFSA. For example, $1 of earned income inside the corporation may pay 15% income tax, leaving $0.85 that can be invested. If the $1 of earned income is moved out of the corporation to a TFSA, you will need to pay personal income tax on that $1, leaving approximately $0.54* to invest in the TFSA. This initial difference in the amount available to invest is the main driver for the advice to leave the money invested inside the corporation. I believe that the TFSA option is worth exploring when we start looking at the long-term effects of investments in a corporation and in a TFSA. Investments in a corporation are taxed yearly on the returns that they generate. The returns are taxed as passive income, not as active business income. Investment returns do not receive the 15% corporate tax rate mentioned above; instead they are taxed based on their nature. Interest income is taxed at approximately 50%; dividends at approximately 36%; capital gains at approximately 25%. Investment returns inside a TFSA are not taxed, as the account is tax-sheltered. Over a long time period, tax-sheltering is valuable. The other factors to consider are the uncertainty of personal dividend tax rates in the future- should you choose the ‘invest in the corporation now’ option, when you need the money, you will pay income tax at the going rate. Indications from governments are that tax rates on Canadian Controlled Private Corporations are more likely to move up than down. As the portfolio grows inside the corporation, you are likely to need to re-balance your investments, triggering capital gains. It may make sense to move some of that money to a TFSA, where re-balancing is not a taxable event. See the link below for a paper researched by Jamie Golombek reviewing the nature of investments held and the optimal location. Although the paper was first researched in the brief time that the yearly TFSA limit was $10,000, the conclusions still stand- if you are investing in interest-bearing investments, you are best to move that money out of the corporation and purchase those investments inside a TFSA. Investments that pay dividends are also best inside a TFSA over the long-term. Capital gains (usually generated from stock investments) are more beneficial inside a corporation- it may not be worth the initial tax payment to move the money to a TFSA, then invest. The decision to deposit to a TFSA or invest inside your corporation is best made in discussion between your accountant and your planner- there are many individual solutions that take into account yearly tax positions and opportunities, as well as investment preferences and overall portfolio allocation. If you don’t have a TFSA solely because of your corporation, I recommend that you review your situation again and see if there are opportunities to tax-shelter while still being tax-efficient.
Disclaimer- the above is a general illustration only, personal circumstances will vary. As always, talk to your accountant before making any significant changes to your situation. To review your current plan and future goals, please contact [email protected] to book a consultation.
*Individual tax rates can vary depending on other sources and types of income, as well as surtaxes. This number is an approximation of an individual close to the top tax rates. CRA The Tax-Free Savings Account
An interesting recent comment from CRA on ‘active trading inside a TFSA’
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Building Blocks: 5 Financial ValuesWednesday, June 28, 2017
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How do we decide how we spend our money? Most of us have trouble answering this question. How are we teaching our children then? Well, they watch what we do, and interpret our actions, correctly or incorrectly. If we don’t deliberately teach financial literacy, our kids may end up with a tangle of patterns as adults.
5 Financial Values*
You’ll have many chances to practice this one and it’s never to late to start. Younger children can hear “not this time” when they pick up items while shopping or in line at the grocery store. Conversations with older children will take a different form, especially if they haven’t heard ‘no’ often. ‘No’ with an explanation helps them develop a process for making decision. For example, when a child asks for a new phone, you can explain why you’re not buying them a new phone the day they ask for one. The explanation can be as broad as “we’re making some changes in how we manage our money for the family, and I’m not going to put that amount towards a phone for you right now”.
This can be a tough distinction, but it’s important. Use the chart from last week’s blog to help you sort your expenses into the pie chart. If you have some amount left over in the “live” section, you have room for wants. Wants need to be prioritized, as all of us run to end of our money at some point. Allowance can be helpful for kids to differentiate – give a monthly amount that must cover some needs and leaves something left over for wants. “Your allowance needs to cover your clothes (except shoes, coats and boots). You can decide how to divide the rest between eating out for lunch, movies and other things that you may want to do.”
Advertisers would have us believe that delayed gratification is a phrase from a previous generation. This skill is key to many successful adult behaviours- I don’t know anyone who has completed a course of education without delayed gratification. If you give an allowance, talk to your child about saving for larger purchases. For older children, when allowance must cover some needs and needs, wants may have a wait a few months to accumulate the money for the purchase. This is a good chance for the child to evaluate how much they want the item; they may forget all about it, or decide that another experience/purchase is more valuable to them.
None of us can have everything at one time, we all make tradeoffs. Tell your children about some of your tradeoffs- “We went out for dinner last week, this weekend we’ll choose a movie from Netflix instead of going to the theatre.” Verbalizing makes it clear that you are making decisions, otherwise children just see a string of events. It’s okay to talk to kids about spending decisions that you wish you hadn’t made. They don’t need gory details on what you may have done, generalities and a solution are enough to teach the values. “We had a collision of expenses last month, and I need to spend less on (insert a discretionary spending area for you here) this month.” “I loved this sweater in the store and I was so sure that it was really important to me to own it. Now that it’s here, I realize I could have used the money for other things that would have been more meaningful to me.”
Watch commercials and other forms of advertising with your kids. Ask questions, listen to what they think of the promises and product portrayal. Remind them that an advertisement’s only goal is for you to purchase the product, not to make your life better. Teach them to put new information in the context of their current situation and priorities. “I’ve already spent money on a Lego set this month, and I wanted to go to a movie with my friends next weekend. If I buy this new thing now, how will I pay for the movie?” Pulling financial transactions into a conscious decision-making arena helps adults and children use money as a tool to meet goals instead of being controlled by our purchasing patterns.
* Kids, Wealth and Consequences by Richard A. Morris and Jayne A. Pearl. 2010 Bloomberg Press |
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Sara McCullough 83 July 24, 2024 |
Fraser Lang 1 May 10, 2017 |