When starting a new job, you usually feel a mix of two things: elation and apprehension. The prospect of earning some cash and meeting new people is always exciting, but the new responsibilities that come along with working can be pretty daunting, too. That being said, it’s all a learning experience. When you get into the swing of your new job, you’ll know the ins and outs of your workplace like the back of your hand. But one part of being employed that often eludes us young folk is understanding the peculiar pay cheque—like, what are EI deductions? What are all those different earning types for? And how am I supposed to keep track of all my pay stubs? The answers to these questions and more lie herein.
It’s All About the Net
On your pay stubs, you’ll see two payments: gross and net. The gross amount is what you earn before your deductions, and the net amount is what you actually get to keep.
Don’t Have Direct Deposit? Get on That!
Some employers offer direct deposit of your pay cheque right into your bank account, instead of giving you a physical cheque on payday. Easier for you, easier for them right? While getting direct deposits may be a better option and less hassle, getting an actual cheque doesn’t have to be so bad either. Some banks have put the technology right in your hand to deposit that cheque using your mobile device.
The Mysterious Exemptions and Allowances
If you’re like me, you may have noticed the federal and provincial exemptions/allowances on your pay stub and said to yourself, “What is that supposed to mean?” After a bit of digging, though, I’ve realized it’s not that complex. These numbers are personal tax amounts that any Canadian resident can claim as non-taxable income for their tax returns. For 2015, the federal and provincial tax exemptions are $11,327 and $9,863, respectively, although they change every year along with inflation.
EI and CPP Are Your Friends
These two deductions may seem confusing to those who’ve just started working, but they’re actually here to benefit you. Employment Insurance (EI) deductions accumulate to provide you with some extra cash in the event that you become unemployed, and Canada Pension Plan (CPP) deductions are earnings saved up for your eventual retirement.
What’s “Year to Date” and Why Should I Care?
This one’s super easy. The year to date (YTD) column on your stub simply represents the amount you’ve earned starting from January 1st of the year up until the present point. It’s a good way of keeping track of not only all your earnings of the year, but also what’s been deducted from your pay.
What Determines my Tax Bracket?
This one’s straightforward, too. Income tax deducted is determined by how much you earn annually. Anyone earning less than $44,701 gets a mere 15% income tax deduction. Seeing as the majority of secondary and postsecondary students fall into this category, it’s safe to say that the lot of you are safe from high income taxes for now. A more comprehensive breakdown will give you an idea of your possible future tax bracket.
Avoid Living Paycheque to Paycheque
While it’s tempting to spend all the money you earn on new clothes, video games, and date nights, your future self isn’t going to appreciate that too much. Always put money aside from each of your pay cheques so that you can establish some financial security—not only that, but in case of an emergency, you’ll have money handy to take care of it. One rule of thumb is to try to save about 10%, so that is around $10 for every $100.
Give Your Paycheque a Good Home
Choose a bank account for your paycheque that gives you the flexibility you want without a lot of fees. These fees can add up quickly each month if you aren’t careful with how often you use your account or don’t know how much or what services you have to pay for. Less fees = more money in your pocket to buy what you need or save for the future.
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General information not about CIBC Financial products is provided for your reference and interest only. The above content is intended only to provide a summary and general overview on matters of interest and is not a substitute for, and should not be construed as the advice of an experienced professional. CIBC does not guarantee the currency, accuracy, applicability or completeness of this content.
Congratulations to Madison Matthews from Memorial University, Winner of Week 7 in CIBC’s $10K Study Break!
Enjoy that $1,000 study break, Madison! For your chance to win, see this week’s challenge.
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