Income – YoungVestors

Personal Finance 101 Crash Course for Canadians

About Lesson

Everyone needs some type of income, whether it comes from a paycheque, an inheritance or investments. You need to know how to keep track of your income and manage it to cover your expenses and save for future goals.

In this section you will learn:

how to understand your paycheque
how to calculate your total income from all sources
what to do if your income drops unexpectedly.

For most of us, our main source of income is our job. Most people get paid through a biweekly or semi-monthly paycheque. But you may get paid irregularly if you do contract, consulting or seasonal work, or odd jobs.

Below is a sample paycheque and pay stub. This is for a person who gets paid an hourly wage of $17. (Note that in Quebec, paycheques also include deductions for provincial taxes.)

Paycheque for $1,146.99

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Sample pay stub

Earnings	Rate	Hours	Earnings this period	Year to date ^Footnote1
Regular ^Footnote2	17.00	84	1,428.00	8,845.95

Deductions
	Income tax		– 184.90	1,105.99
	EI ^Footnote3		– 25.42	159.02
	CPP/QPP ^Footnote4		– 70.69	404.49

	Other ^Footnote5
Full deposit			1,146.99
Net pay ^Footnote6			$1,146.99

Footnote 1

Year to date: The total amount of pay and deductions from the beginning of the year through the current pay period.

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Footnote 2

Gross income: The total amount of pay before any deductions are taken out

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Footnote 3

Employment insurance (EI): A percentage of gross income paid by employees and employers to provide temporary payments if workers become unemployed. Self-employed can access EI special benefits. For more information visit Service Canada website, Employment Insurance Special Benefits for Self-Employed People.

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Footnote 4

Canada Pension Plan (CPP)/Quebec Pension Plan (QPP): A percentage of gross income paid by employees and employers to provide income when workers retire or become disabled, or for survivor benefits. The employee contribution is 4.95 per cent, and the combined contribution from both sources is 9.9 per cent of your gross income.

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Footnote 5

Other: Other deductions may include private pension plans, health insurance premiums, union dues and professional fees, transfers to your registered savings plans and charitable donations.

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Footnote 6

Net pay: The amount of pay remaining after deductions are taken out

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Your paycheque may show a deduction for vacation pay. This is a portion of your salary (ranging from four to six per cent) that you are entitled to receive as part of your pay. For most full-time employees, this equals two to three weeks of vacation annually with pay. Casual and part-time employees often receive their vacation pay on each paycheque. Employers usually keep vacation pay in a separate fund and pay it to you when you take your vacation. For some types of employment, it may show on the pay stub.

Go to the Canada Revenue Agency’s information on paycheque deductions and income tax for more details. In Quebec, visit Revenu Québec.

There may also be deductions taken from your paycheque for provincial or territorial programs. For example:

In Quebec, employees and employers pay a percentage of the gross income to fund the Quebec Parental Insurance Plan (QPIP), an income replacement plan that supports parents of a newborn child.
In the Northwest Territories, a two percent payroll tax is deducted.

Check with your provincial or territorial ministry of finance or labour to see whether any deductions apply where you live.

In addition to your job, you may have other sources of income. Use this chart to identify all your sources of income. Then calculate your total monthly and yearly income. You may want to collect recent pay stubs and income tax statements to get accurate figures.

If your work income stops—for example, if you lose your job or can’t work for some other reason—you need other sources of income. Here are some suggestions.

Workplace and government plans

You may be eligible for Employment Insurance benefits.
You may be able to draw on salary or vacation pay you have not been paid yet.
You may be eligible for income assistance programs. (Contact your provincial or territorial government ministry responsible for social assistance programs.)

Insurance

You can buy insurance in case you lose your job. This insurance will pay your mortgage, credit card payments and other loans until you get back to work. Disability insurance provides income each month if you get sick or hurt.
You must apply for insurance before the loss of income occurs. Also, there may be limits or conditions on the insurance, so find out exactly what the coverage is.
You may have insurance as part of an individual or company group plan.

Savings

Use emergency funds first, if you have them, to pay your bills.
You may be able to draw on your retirement savings. However, try to avoid this if possible because you will need the funds in the future. Also, if you withdraw funds from a Registered Retirement Savings Plan (RRSP), up to 30 percent will be withheld for income tax.

Property

You may sell your home or other property for cash, then buy or rent another home for less.
You may be able to rent out part of your home to bring in extra money.

Loans

You may be able to borrow money from friends or family, or from the bank.
You may be able to get a loan based on the money you have put into your home.
Use loans as a last resort.

Tip

Plan ahead—before a crisis hits—so you can handle the unexpected. Experts recommend putting aside at least three months’ worth of household expenses for an emergency fund. Know where you can turn for assistance if your income drops.

For more information about replacing lost income, see the Ontario Securities Commission video “How to handle being laid off.”

A job is the main source of income for most people, but there may be many other sources.
Deductions are taken off paycheques for taxes and to pay for social programs like pensions and employment insurance. The income that is left after deductions is called net income.
Prepare for a sudden loss of income by setting aside some cash every month for an emergency fund and by knowing where to turn for help.

At the end of the module, you will find an Action plan. This is a tool that you can use to track your progress and take the next steps to manage your income and expenses successfully in the future. Use the action plan as a roadmap for financial action!