6 Money-Saving Tips for Canadians
As we reach the end of the year, many Canadians are starting to think about their finances both as a way to reflect on the year but also to prepare and goal set for the next year when it comes to saving money. I have been an advisor for over 10 years helping Canadians grow their wealth and here I am sharing the 6 things I remind my clients to do each year that puts more money back into their pockets, pay less tax and prepare the new year.
2020 has been a difficult year for everyone but with some planning, we can be off to a much better start for 2021.
CERB, Canada Emergency Response Benefit
Now this one is specific for 2020 because, well…COVID, but this is an important one to know as there were 8.9 million Canadians who applied for it. CERB, or the Canada Emergency Response Benefit, has now ended as of December 2, 2020. For those who were on CERB will now transition to either EI or CRB if you qualify. The difference between the two is that EI gives 55% with at least $500 per week for 26 weeks while CRB gives you a flat $500 per week for 26 weeks. If you’re interested in learning more, here is a video on the top 10 FAQ about EI & CRB here.
If you had applied for CERB but realized later that you did not qualify, you will need to pay this back by December 31, 2020. The ways you might fall into this scenario is if you applied to CERB not knowing you didn’t qualify but still received the benefit OR you applied to both the CRA and Service Canada and ended up with double payments by accident. If you fell into either of these categories, you can log back into the CRA portal to return it or you can visit www.canada.ca with more information.
Budgeting for taxes
This time of year is the time to start thinking about taxes, especially in 2020 where so many Canadians received benefits to get through the year. CERB, EI and CRB are all taxable benefits meaning you will be responsible for paying taxes on the benefits for the year. No taxes were withheld on CERB, and 10% was withheld for EI and CRB. However, 10% is typically not enough to cover it and you may find yourself needing to pay more in April.
If you were or are an employee working 9 to 5, budgeting for taxes may be new to you as taxes were automatically deducted for you from each paycheck. However, if you were laid off this year, even for just a portion of the year, there are chances that between the benefits, any severance you may have received and any vacation days that were paid out, that you might have actually made 10-30% more than previous years.
Here is an example:
Sam worked for the first 4 months of 2020 and was laid off. He received severance and was paid out for his remaining vacation. He was qualified for CERB and received 2 months of benefits until he found a job 2 months later. In this scenario, Sam is likely making more this year and can expect to pay more taxes. If Sam predicts his income is higher this year but expect to return back to normal or be lower next year, he can contribute to his RRSPs first to reduce his taxable income for this year and then take it back out next year to balance out the tax consequences. My recommendation is to budget for your taxes by putting a portion aside. Don’t touch it and save it for next year’s tax season.
RRSP, Registered Retirement Savings Plan
RRSPs can help you reduce your 2020 income. Yes, you have until February to contribute to your RRSPs or use a RRSP loan however, I don’t recommend waiting or using a RRSP loan. Here’s why: You’ll spend the money if you don’t put it away! Especially during this time of year.
So instead of waiting until February to put in one lump sum, start now and break it up into three months. Trust me, it’s less painful to watch that money move away.
If your income is high this year, use that RRSP to offset your income and if next year, you still don’t have income, you can always take it back out. You can average tax burden into 2 separate years.
Also for anyone who is 71 now, be sure to talk to your bank or carrier who manages your RRSP.
because at the end of age 71, it is mandatory that our RRSPs change to an RRIF meaning you are forced to take some of your money out. The question is: do you want to take it out as a lump sum or do you prefer a monthly payment? It’s a good idea to talk to the carrier to plan it out, otherwise they will plan it for you.
If you have questions about your RRSP and want to know if your account is on track, feel free to reach out to me for a complimentary consult.
TFSA, Tax-Free Savings Account
If you are often putting in and taking out of your TFSA, be sure to watch your limit because you will get taxed if you exceed your contribution limit. If you took TFSA out this year, that dollar amount is added on top of your annual contribution for the next year. Basically, if you always max out your TFSA room and took some money out this year, you can’t put it back in until next year. So echoing back to my previous point about RRSPs though, a lot of people will take money out of a TFSA and put it into an RRSP in February.
I recommend doing this now in December before the room resets on January 1, then by the time April comes around and you get your tax return, you can then put it back into your TFSA.
Otherwise, you will need to wait for a full calendar year to put it back in.
Save and don’t spend
You might think that maybe because you didn’t do any travel this year that you have extra money to treat yourself. But here’s my friendly reminder: don’t buy things just because it’s on sale! Instead, save that cash smartly by investing it into things that will give you a return.
That could be putting it into an investment or it could also mean investing in yourself too!
Make a difference
And now I’ll end with my last point which is to make a difference. Let me ask you this:
What will you be doing differently in 2021?
What are you doing today that you will do differently than yesterday?
Especially looking back at 2020, It is indeed a difficult year for a lot of people! And to the rest of us, this year is different! I hope you’ll take the time to self-reflect on what you’ve done well in, where you can improve and find what’s important to you as we head into 2021.
Time goes by fast and life is short.
Make the most of it, and make a difference with it too.
For me, I always challenge myself to do something new each year. so in 2020, that was starting my YouTube journey! It’s something different and definitely very challenging thing for me to do. If you’d like to check out my channel for more about finances in Canada, you can follow me here.
If you’re looking for a customized recommendation for your personal finances, please feel free to reach out to me here for a complimentary 30-minute consultation.
Cheers to 2021!