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Clearing the Gap

 

“Improving Finances” was listed by 38% of respondents to Forbes Health/OnePoll survey.  That’s a lot of us who want to change our finances.  I’m confident that resolution is a re-run for many of us.

 

If you’ve thought about ‘improving your finances’ before, and haven’t made the change that you wanted; if you’ve tried to tackle where your money is going, how to get a grip on whether you’re going to be okay in the future, if you can afford to [fill in the blank] and still [fill in the blank], I have a few tips for you to get you from saying it to doing it.

 

Pick small steps- by small, I mean SMALL. (ironic, I know) Clarifying one thing at a time is progress and will build your financial foundation.  Need examples?  Figure out your monthly take-home income if you’re not sure where your money is going.  Listen to a podcast episode on money if you want to build your knowledge and comfort with finances.  Need recommendations?  Follow me on Facebook, Instagram or LinkedIn for future posts on this.

 

If you are changing any of your habits, give yourself time to solidify the change.  “A new habit” is actually two steps- you have to stop the old habit and start a new habit.  On average, you need 66 days to form a habit if you do it every day.  Some of your financial goals may not happen every day, so do two things with this information:

 

     ◊  make a plan to check in with your habit at least weekly to keep momentum (even if that’s just a reminder of ‘hey, my RSP limit this year is $45,839 sticky on your mirror)

 

     ◊​   be kind to yourself if you need to re-start when the old habit took over.

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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 contribution rates

 

CPP2

 

CPP payments- 2024 inflation adjustment

 

OAS payments- first quarter 2024 inflation adjustment

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