How Much Tax Should I be Saving?

How Much Tax Should I be Saving?

Take 25% of every dollar and put it into a separate savings account for your taxes.

It’s good advice right?

But how do you know whether 25% is enough (or way too much)?

Honestly, it’s a tricky thing to figure out especially when you have no real idea of what your income is going to be in the coming year.

I don’t know how much you should be saving… but here are few ways to think about it:

1. Use last year as a guide

A good place to start is with what you already know. Look at your tax return and find the number that shows you what your gross business earnings were last year. Be careful not to pick the ‘net income’ number or even the ‘taxable income’ number. Those are your business earnings after a bunch of deductions are taken off.

Instead, find the gross business earnings which is the total amount of money you made last year.

Now, find the amount of tax you owed.

Divide the amount of tax you owed by the gross business earnings and you’ll get a good working percentage.

The question then becomes: is it reasonable to think that this year will be like last year?

2. Harness the power of your fear to oversave for your taxes

I’m a big fan of fear savings. I use my terror of the Canada Revenue Agency to pick a percent that I know will be more than I need. The nice thing about that is that at tax time I get to give myself a refund. Yay!

It’s a great thing to do IF you can afford it, but of course for lots of you … that’s not possible.

3. Think through your upcoming year and play around with a tax calculator

If past numbers aren’t a good guide for you, sit down and think through your income goals for the year (or map out your income with THIS TOOL). If you don’t have any income goals… now’s a great time to play around with them.

This doesn’t have to look fancy. Just open up a TAX CALCULATOR and punch in numbers to see what kind of tax you might owe. It’s a good way to get a rough idea of what a good percentage is for you.

4. Set Milestones and times of year to check in

 The truth for lots of us is that the year is a giant question mark. We could scrape by with the bare minimum or get a windfall of work and make more than we ever have before.

The best method to manage that kind of variability is to make a plan… and then check in periodicially to see if you’re still on track.

Let’s say in January you decide that 20% is more than enough to cover your taxes for the year. Mark your calendar in April, July and October to check in and make sure that this still work. Track your income and use that TAX CALC again to see if you’re still putting away enough.

Remember this finance stuff isn’t a ‘one size fits all’ situation.

Your life is variable, and so your finances are going to have to stay flexible to keep up. The game changer is staying ahead of those changes instead of looking in the rear view mirror and knowing exactly what you ’should have done’.

The important thing is that we practice our technique. That we practise setting aside some amount and check in often to make sure that we’re on track. 

You’ve got this!!

 

Want to start getting control of your money? How can I help?

Chris Enns

Chris Enns

Financial Planner/Opera Singer

Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.

And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.

And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.

If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.

I Don’t Want to do my Taxes Either

I Don’t Want to do my Taxes Either

UGHHHHHHHHHHHHH.

That’s how I feel about doing my own taxes.

Now you might think… Chris… you must love doing taxes, don’t you like money? Don’t you write about taxes and stuff all the time?

Sure. But they’re not MY taxes, and somehow that makes all the difference.

Like so many of you, it usually takes the emergence of something else that I really don’t want to do before I finally haul out the receipts and fill out the spreadsheet that my accountant needs.

Usually the motivation for taxes is more ‘stick’ than ‘carrot’ so this week I wanted to highlight a few good things that come from doing your taxes.

3 Really Good Things You Could Get by FIling Your Taxes:

1. If you’re a parent you gain access to the Canada Child Benefit. If your child is under 6 that could mean more than $6,000 of tax-free money… but you don’t get it if you don’t file your taxes. If you haven’t filed for a few years you could even get some of that sweet cash for past years too, You can learn more here. 

2. You get RRSP room. If you don’t know what an RRSP is or how it works you can read more about it here. For those of you who understand the general concept remember that the way you earn contribution room is based on your income… and they know what your income is from your tax returns.

3. If you didn’t make much this year and you’re thinking… why do I need to do this anyway… the answer is the GST/HST credit. Low income earners will get access to this benefit (and possibly other benefits as well) You can learn more here.

I Know it’s Not Fun… But Avoidance is Expensive

It’s a stupid system. It doesn’t need to be this complicated.

But for now, it is. And for now… you’ve got to do it.

And I promise you from the bottom of my experience, it’s generally not going to be better to wait. It gets more expensive and more stressful.

And if it helps, keep in mind the good things that can come from getting through all that filing and number entering. I’ve only mentioned a few, there are more programs, credits and perks that come from getting it done. 

Power through and make yourself a tasty snack! You got this. 

 

Chris Enns

Chris Enns

Financial Planner/Opera Singer

Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.

And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.

And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.

If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.

Office Hours Roundup: How do I Talk to My Partner/Family About Money (and Other Questions)

Office Hours Roundup: How do I Talk to My Partner/Family About Money (and Other Questions)

We hold office hours once a month. People sign up for free and we talk about money.

We wanted to start highlighting a few of the many great questions people ask so that we can all learn from them and weigh in as a community.

The questions have been changed slightly and generalized to make sure to protect the privacy of these sessions.

 

Question #1: How do you help a partner or family member who isn’t as engaged in their finances as you’d like?

This is such a tough one and every situation is very different but I feel like the thing that spans every case is more communication … which is way easier to say than to do.

You’ve got to figure out ways to bring money into the conversation. Until that happens things are never going to get better.

BUT… let me be clear. Talking about money doesn’t mean that you jump right into the most stressful issues or tell them all about the things they really ‘should be doing’. Creating a foundation of communication is way harder than that. It will take time. It will take patience (on both sides).

I recommend to start with some fun topics. What do you wish there was more money for? What would you do with all the money in the world? What do you love spending money on (only a good question if it can be asked with judgement)?

And when the other person opens up… listen. Don’t try to fix things right away. Don’t leap into action unless they actually ask you to. Just listen. Just be there for them.

Most people avoid money because of the intense feelings of shame and inadequacy is brings up. Remember that and be as gentle as possible.

AND… if starting these conversations is simply impossible. Start having them on your own. Work in your own money fears and work into the conversation whether they respond or not. One day they might join the conversation.

Question #2: I’m doing okay and have a bit of extra money every month but I’m not sure what I should be doing with it… RRSP? TFSA? Mortgage? General savings?

First of all, it’s difficult for me to give any specific advice about what are the most efficient options without really diving into your numbers and projections, so here are some general thoughts.

What I would encourage you to do is to really think about what your overall goals are. Is this money for 30 years from now? Do you have upcoming things that need funding? Which out of these goals are the most important to you right now.

Getting really specific about which goals get fed first is going to help you allocate funds when they’re available. This is especially important for self-employed folks with variable income. We don’t know exactly how much we’re going to have available for these goals. But we can have a list of how we want to attack them when money is available.

Once you’ve got the list you can get a little more specific about action (this is not a recommendation, but just a hypothetical). 

  1. Pay off credit card – I’ve automated payments so this is done by November. Where did this debt come from? Am I making sure I’m protecting myself against building more debt?
  2. Pay down mortgage in 5 years – How much does it take to do this? What’s your pre-payment amount every year?
  3. Contribute to TFSA – how much do you want to aim for? What is this money for? Retirement?
  4. Build an emergency fund – what would this fund help you do? How much would you like to have in it?
  5. Contribute to RRSPs – how much contribution room do I have?

By looking at your numbers I can come up with the ‘most efficient’ choice, but that’s only one factor. When it comes to which tools are right for you make sure you’re always fixing yourself to a goal and then applying the tool … not the other way around. 

 

Question #3: How to I wrap my mind around the costs of living in another country?

 

This is such a stressful thing. Moving is hard enough, but moving to a country adds so many unknowns to the equation.

I think the most helpful thing for me would be to start getting organized. When I’m packing for a longer trip I have two piles: things I’m taking with me, and things I’m leaving behind. You can do the same thing for your expenses.

Make a big list of what you spend on right now. What are your fixed costs, your other monthly spending and the annual stuff that happens every year.

Now… make a second list for your new country of residence. What are the expenses that you’re taking with you? Which expenses will probably be different and what expenses are going to get added to the mix?

That list is the collection zone for all your stress and you can use it to slowly start researching and putting together an answer to the question of ‘how much are we going to need when we move’.

Spend the next few weeks and months chipping away at this list one item at a time: what will we have to pay for housing? Are there any curve balls in renting that are different than here (in some countries you need to bring your own kitchen appliances or provide your own floor)? What might food cost?

Use google or ask people who have lived in these places what good thoughtful numbers might be.

If you’re not sure or can’t find good resources for where you’re moving make sure to budget for ‘a period of adjustment’. It always takes time in a new place to get set up and find the less expensive stores. There are also extra costs for setting up a new place.

The most important part of this exercise is to actually write it all down. Getting these thoughts and numbers out of your head is going to make it way easier to start wrapping your mind around the move.

Chris Enns

Chris Enns

Financial Planner/Opera Singer

Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.

And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.

And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.

If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.

I’m Afraid to Budget Because Then I Might Have to Change

I’m Afraid to Budget Because Then I Might Have to Change

It’s Monday.

On Monday’s I sit down and work out my schedule for the week.

it’s a new thing, but I’m really trying to get control of my time… and I’ve found this to be really helpful.

…. when I do it.

The funny thing is that every Monday I find myself actively resisting doing this thing. Actively doing anything else in order to avoid doing a thing I know for a fact has been really valuable for me.

And I had a thought about that which relates to both money and time that I wanted to share with you (instead of actually doing the scheduling).

Am I fighting the exercise of sitting down and budgeting my time because part of my brain knows that it’s impossible without major change?

This is my fear.

My fear is that the end of every exercise is that I need to make some major changes to how I spend my time.

My fear is that there are problems with my current habits.

Important things aren’t getting done, and less important ones are being obsessed over.

I know that if I keep sitting down and engaging with my time… I’m going to come to the conclusion that there need to be changes.

And not just changes… but hard conversations with people and projects that I really enjoy.

There might be disappointing people.

There might be accepting the fact that not only can I not do as much as I’m trying to do right now, but in fact… I’m not succeeding at doing all the things I’m committed to in this particular moment.

And that sucks.

Are you fighting the exercise of sitting down and budgeting your money because part of your brain knows that it’s impossible to actually balance things without major change?

Because if you are … I get that.

I get wanting to bury your head in the sand and not know… because as soon as you really know… as soon as it’s there in black and white in front of you, you have to deal with it.

And that might mean some big changes.

It might mean spending less.

It might mean major changes in what you feel you’re able to do.

Except you’re probably not actually doing it right now. You’re probably making a bunch of commitment and then as the money runs out… backing out of some, or borrowing from the next months commitments to temporarily get through another week.

You know you need to do less, you need to spend less, because you feel the stress of not having enough to handle all your current obligations.

That’s why you’re worried about it.

That’s why I’m worried EVERY WEEK about my time.

But I’m also scared of doing something. I’m scared of fixing the problem.

And I know that doesn’t make sense, but I think to some of you it might make a whole lot of sense.

For today I’m going to acknowledge that feeling. For today I’m going to hear that fear and not tell it that it’s completely crazy.

But also… today I’m going to budget my time anyway, I’m even gonna try and find something to say ‘no’ to. … and maybe next week it’ll be a little easier. 

Update: I wrote this piece almost a year ago and never published it on the blog. It’s so interesting to think about that struggle with time and how much differently I feel a year later. The numbers are scary but THEY HELP. I promise they do. 

Chris Enns

Chris Enns

Financial Planner/Opera Singer

Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.

And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.

And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.

If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.

I Need to Make More is a Really Terrible Income Goal

I Need to Make More is a Really Terrible Income Goal

For those of us that don’t love numbers we often use the same words over and over to describe what we want with our money: more, less, and enough.

“I just want to have enough to live my life.”
“I need to make more money.”
“If only I could spend less, things would be much easier.”

But those are really hard things to do, and they’re made even harder because you haven’t given yourself any tools to actually solve the problem.

How much is enough? How do you know when you’ve gotten there? How much more money do you need to make? Are you just going to take every single job possible until it feels like enough? And spend less… on what? How much less? How much are you spending now?

Real Numbers Help Solve Real Problems

Putting real numbers on things is scary. It really is. Maybe you’ve experience that already by filling out the KNOW YOUR NUMBER worksheet or using THIS SPREADSHEET to map out your income for the year.

Maybe half way through those exercises you wanted to shut it all down.

The fear is real.

But on the other side of the fear is a tool. A tool for you to solve some of that stress that you’ve been feeling lately.

By putting thoughtful numbers on the way you live your life you can start to map out real opportunities for change. You can create a plan that lets you live the way you want and move forward on some of the big stuff.

Income Goals Can Help A lot.

Lots of us in the self-employed realm are what the internet calls ‘hustlers’. We take every job that’s thrown at us. We feel desperate to take every opportunity to earn income because you never know when all the work is going to dry up and the phone stops ringing.

Again… the fear is real.

A number that can really help in that war against fear is an income goal to aim for and there are a few different ways to think about making one.

  1. How much do you need to earn to cover your expenses: one way to build an income goal is to come up with your ‘breakeven number’. How much do you need to earn every money (or every year) in order to make sure all the bills are paid.
  2. Giving yourself a stretch goal: Let’s say you know your break-even number… but you want to go bigger. You can set yourself a goal that pushes you to grow more. I’ve been setting these kind of goals for the last few years and they can be really useful… and also terrifying.

If you’re interested in figuring out what those numbers might be, try THIS TOOL out (here’s A TUTORIAL to help you figure it out).

Balancing the stress of earning with all the other stuff you’re trying to do

People who work more conventional jobs often don’t have the option to ‘make more’. Unless they want to negotiate a raise, they’re stuck earning what they earn.

But as always, with great power comes great responsibility.

When I talk to clients about making income goals, whether it’s to cover their expenses or a stretch goal, we talk a lot about what’s possible and what that might look like.

Remember, there are so many parts of work besides what we’re getting paid for it. Is it the kind of work you enjoy doing? Does it still allow you the time and energy to do the other important things in your life?

Yes, you can make more money, but is it worth it? Maybe it’s a better trade off to spend less in order to balance out your enough.

… I know that sentence is almost entirely useless to you. But if you keep rolling those questions around in your head and start replacing those words with thoughtful numbers… you’re going to start feeling way more control over your money.

Chris Enns

Chris Enns

Financial Planner/Opera Singer

Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.

And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.

And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.

If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.

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