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!!

 

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.

Managing Deductions for Freelancers: It’s not your Money

Managing Deductions for Freelancers: It’s not your Money

It's not your moneyMy resume is terrible. I have only had one real job in my life, for one summer, and that was almost ten years ago. There are times when I am proud of this fact, and other times when it’s more on the “extreme shame” side of things. I’ve spent most of my life working as either a farmer or an artist; two jobs that can fill the day with work, but are difficult to translate in to “resume” type experience.

But I did have that one summer, in which I experienced the sinking feeling of opening your first paycheque and realizing how much smaller it is than you were expecting.

You know it well… there must be something wrong! Where has all my money gone?

Well, I hate to break it to you: It wasn’t your money. (more…)

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