Budgeting and Cash Flow

Budgeting and Cash Flow

Other Deductions

Other deductions that occur on a pay stub that would reduce the amount of money available for spending include annual union dues, life insurance premiums, health insurance premiums, critical illness insurance, long term disability (LTD) insurance, automatic savings plans co-ordinated through your employer as well as benefits that you are paying for through your employer. Since these deductions vary greatly depending on where you work, the easiest way to account for these deductions is to look at your pay stub or ask the Human Resources department at your employer for the details.

Taxes

Employee

The easy way to estimate taxes for your budget is to use your prior year’s tax return and add up the taxes that were paid for the whole year – from your pay cheques and additional am

Summary

This series has described budgeting in 2 main parts. The first part is building your budget accounting for the income sources and expense sources which can be fixed or variable in nature. The budget is broken down into parts that you can control in the short term and parts you can control in the long term for you to see your options in adjusting your budget. The second part of the process is how to make changes to your budget and how to examine its various parts. The changes range from something incremental to a major life decision that can change many aspects of your budget. Much of this is scenario specific as in what parts of the budget get changed are driven by what situation you find yourself in. An extension of making changes to your budget is your money psychology, mindset and habits which underlie your decision process when it comes to money. A budget is a small scene that is part of a larger picture which is your financial situation. As you become more acquainted with the process, you can become the sovereign of your budget and cash flow!

ounts recorded on your tax return. Another source for the taxes paid throughout the year is your last pay stub of the calendar year, or your T4 slip which shows taxes deducted throughout the year only. If your income or tax claims are changing on your tax return versus the prior year, you may have to pay more or less income taxes when you do your tax return. The paragraphs below delve more into the details of the tax estimate.

There are taxes taken at source from every pay period from your pay cheque. The taxes deducted are based on a payroll schedule which assumes various tax credits and that you make a constant annual amount of money from a single employer. The language used in the last sentence is deliberate to show where taxes may deviate depending on you situation.

The tax credits are listed when you begin a new job on a form TD1. Typically, a person will automatically get the basic personal amount and any other tax credits would be accounted for on your tax return when you file it. If you have a situation where you know you would be entitled to other credits, you can indicate them on the form TD1 and the employer will take less taxes off each pay cheque to account for them. As with everything tax, there is also a provincial version of this form for provincial credits. Alternatively, you can request to have more taxes removed (but not less) from your pay cheque for various reasons such as: You want a larger refund, you want to cover taxes from non-employment sources, or as a means of saving.

If you have multiple employers, you will be paying taxes for each of them via your pay cheque. If your salary changes, you leave the employer, you have multiple employers, or you receive bonus compensation, this will change your tax situation.

Self-Employed

For the self-employed, taxes are paid when you do your tax return. If you have been in business for a few years or longer with consistent income, you will have an idea what you will have to pay. Your taxes are charged on your net income, or your business income after your business expenses. If you collect HST, the HST is remitted separately and is removed from your revenue and your expenses for the purposes of doing your income tax return. These HST amounts should be kept aside and remitted when they are due to avoid squeezing cash flows when the HST amounts are being paid. If you are paying taxes each year because your business is profitable, you will likely pay installments periodically to the CRA. These payments are effectively paying taxes throughout the year instead of paying all at once when you do your tax return. Keep these amounts in your budget to keep the cash flows predictable.

Optional Deductions

The mandatory deductions are what you do not have control over. There are some small exceptions like a DC plan contribution match, but those deductions are largely mandatory. Optional deductions are choices that you have made that reduce the amount of money available for spending on a day-to-day basis. These are primarily items that are going towards future goals like education, retiremeOptional Deductions

The mandatory deductions are what you do not have control over. There are some small exceptions like a DC plan contribution match, but those deductions are largely mandatory. Optional deductions are choices that you have made that reduce the amount of money available for spending on a day-to-day basis. These are primarily items that are going towards future goals like education, retirement, or saving for a large asset purchase. Examples are contributions to RESP plans, RRSP contributions, TFSA contributions, profit sharing plans, employer option purchase plans, or automated savings account and investment purchases. These examples are meant to be ongoing, but there are cases when these choices can be changed. This information is available from the institutions where the accounts are held in the case of the RRSP, TFSA, or RESP accounts. Any pension decisions, stock option plans, or profit-sharing plans would be going through your employer. If you have an automatic savings plan, this would be co-ordinated through the institution where your bank account is and where the deposits are being made.

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