Savings Tip - Ride those CPP/EI max like it never happened

[AJDZee]

One savings tip that I do, (I'm sure many others on this site have done too) is set up an automatic withdrawal into my savings/investment accounts timed perfectly when you reach the CPP/EI max contribution.

For those Canadians who don't know what I'm referring to, and make over $47,000(ish) per year - ever notice your paycheque gets a little bigger towards the end of the year? With every paycheque 4.95% gets taken away for CPP, and 1.88% is deducted for EI... until you reach a maximum of $2356 & $891, respectively. Once you hit your max (usually happens around the same time) those deductions are no longer removed from your pay and you open your bigger pay stub yelling "START THE CAR!!" to your SO.

A few years ago I figured, ya know... This whole time I've been budgeting on my take home pay with those deductions in place, may as well keep the budget I have now and put all that extra cash into moving my savings ahead of schedule.

One difference this year is I've set it up to automatically start depositing the same $$ every two weeks into my ING mutual funds on the day I get paid, once I hit this max. (Set this up back in Feb, long before I knew MMM - go me!)

Steps (there is a deduction for personal amount, but this is the quick and dirty way)

1. Figure out your gross pay per cycle; week, bi weekly, monthly etc.
2. Take 4.95% (CPP) and 1.88% (EI) of gross pay (or just look on your pay stub)
3. Figure out how many pay cycles it will take to hit max...

Ex. if you earn $85,000/yr, paid every 2 weeks
CPP contribution = $85,000 / 26 * 4.95% = $162 per pay
$2356 / $162 = 14.5 paycheques

So your 15th pay of the year will have still a little CPP/EI taken off, your 16th paycheque will have no deductions - which works out to about the middle of August. On the day of your pay set up an automatic deposit equal to CPP + EI deductions per pay into the savings vehicle of your choice for the rest of the year.

And voila! Without even knowing it your budget is left unchanged and your savings have 'secretly' got a nice boost for the rest of the year! I think this is the most painless act of savings you'll come across... (And this mofo adds up!! Do the math!)

Bonus points if you've put that money into an RRSP and get a refund.
Points taken away if you stash that money away to get extra Christmas presents for the family!

Cheers

[aclarridge]

While I don't have automatic deductions set up, I do notice when it's that time of year and I get my "fake raise". I don't change my spending, so yeah the extra cash is definitely going straight to investments!

[AJDZee]

While I don't have automatic deductions set up, I do notice when it's that time of year and I get my "fake raise". I don't change my spending, so yeah the extra cash is definitely going straight to investments!

Nice! Me thinks if you're an active MMM you're probably already have your priorities such that this extra cash goes into savings, but by being proactive and making it automatic you don't even tempt yourself to spend the extra cash because you don't see the money in your account.

[icefr]

What I do is I split my paycheck direct deposit to put $X into my checking account and the remainder into savings/investments. That way, I don't notice raises or the absence of Social Security tax deductions from my paychecks because they really do just do go directly to savings!

[AJDZee]

What I do is I split my paycheck direct deposit to put $X into my checking account and the remainder into savings/investments. That way, I don't notice raises or the absence of Social Security tax deductions from my paychecks because they really do just do go directly to savings!

Neat, you can have your pay split by your employer right from the get-go into two seperate accounts?
I've never heard of anything doing that. That's a really good way of sticking to a budget.

[Kazimieras]

Good advice AJDZee, thanks :)

[icefr]

Neat, you can have your pay split by your employer right from the get-go into two seperate accounts?
I've never heard of anything doing that. That's a really good way of sticking to a budget.

Yep! I can split it into up to 3 accounts, checking or savings :) It's pretty sweet! I can even send money to Vanguard via direct deposit, versus going to my checking account and then transferring and having a waiting period.