Depending on how much money you make each year, your Canada Pension Plan contributions and Employment Insurance contributions may be paid up in July or August each year. At this point, your take home pay is normally $115 more each week if you get paid weekly.
The key to get ahead financially is to save that money each week in a TFSA or RRSP.
The maximum amount that an employee will have come off their pay cheque in 2016 is $2544.30 for CPP and $955.04 for EI. Keep an eye on your paystub to see when you are approaching the maximum amount.
Here’s an example of Joe that makes $90,000 per year salary. Now Joe’s gross weekly pay is $1730.77 ($90,000 divided by 52 weeks). He then has $397.47 in federal tax deducted from his cheque, $82.34 for CPP and $32.54 for EI. Now Joe may also have other deductions like his health plan or life insurance that is deducted from his pay but for simple illustrative purposes we are just going to focus on tax, CPP and EI withdrawn.
Joe gets paid every Thursday. His first cheque for 2016 was on January 4th and he took home $1218.42. Now on Joe’s August 11th cheque, he will have his CPP paid up and on his August 4th cheque his EI will be all paid up.
Now Joe’s August 11th take home pay will be $1333.33. Joe decides to take $115 per week and put that into a TFSA from August 11th to December 29th. Total contributions equal approximately $2415.00 (21 weeks X $115.00)
If Joe did this every year, in 10 years, based on a 5% rate of return, Joe would have an extra $31,000.00 built up.
Now one thing to keep in mind is that if Joe received a bonus or incentive in the first half of the year, he will pay up his CPP and EI more quickly.
If you don’t have a plan, then you will find other things to spend your money on. I see it happen every year with clients and prospective clients that come into my office.
Be one of the smart, disciplined investors that makes the decision to tuck this money away. Hey Joe went from January to August on $1218.42 take home each week. Surely he can survive from August to December on the same $1218.42 take home pay and he can put the rest away. You can do it too.
Your retirement fund will thank you for it.