How much taxes are taken out of my paycheque, and what can I do about it?
Have you ever sat down and wondered “where does my money go?” The answer is simple. Taxes. It’s no surprise to many Canadians that taxes take a large chunk of their paycheque, but they might be surprised at the exact amount. A recent report from the Fraser Institute stated that the average Canadian pays a whopping 42% of his or her income to the government in one form or another.
This figure is more than what is spent on food, shelter and clothing combined, and this ratio appears to be getting worse. The report pointed out that the percentage of income going to taxes has increased from 33.5% in 1961 to 42% today, as the average family’s tax bill has risen over 1,800% in the last 50 years.
Because of Taxes, Family Spending is Limited
Charles Lammam, co-author of the report, points out that the current situation limits what families can spend their money on:
“With more money going to the government, families have less to spend on things they care about, to save for education and retirement, and to pay down household debt,” says Lammam.
Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, says the tax burden placed on Canadians may be a cause of rising household debt. “Is it a surprise that we have record level of household debt in this country?” says Schwartz. “Canadians are finding it hard to pay off their debts and a rising tax burden may be a contributor.”
Save Where You Can, Despite Taxes
According to the report, when combing taxes, food, shelter and clothing together, the average family has about 22% of their income left over. Even though that doesn’t leave much for savings and debt payments, Consolidated Credit offers the following tips:
Tax Tourself (in a Good Way!)
Start setting aside a portion of your paycheque directly into savings or debt payments. By authorizing your bank to do automatic deductions, you will take the thought process out of this task. Before you know it, you will have accumulated a tidy emergency fund and eliminated a solid chunk of your debts. Making it easy and automatic will decrease your stress and your debt.
Cut Back Where You Can
With food, shelter and clothing taking over a third of our income, those are the areas where you must seek out savings. Visit supermarkets late at night to find marked down products, shop for clothing at used or vintage stores, and consider moving to a smaller home or apartment. Taking these small steps will create big savings.
Make Responsible Decisions
Few successes in life come without a solid plan behind them, and the same can be said for your personal finances. Utilize budget tools to get you on the right track to financial success. Be ruthless in achieving your savings goals each month and challenge yourself and your family to save wherever possible. When saving becomes a habit, you will be well on your way to a lifetime of financial success, regardless of how much you pay in taxes.
If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at 1-888-294-3130 for a free debt analysis.
