Going through an unemployment period in one’s life is never fun. It is a phase that can lead to a lot of stress and disharmony in the self and family. However, after the initial stress and shock of unemployment has passed, this moment can also offer incredible opportunity to refocus one’s life and career plans.
Unemployment is usually associated with loss of income. However, this is just one, albeit a very common perspective. This may sound like a paradoxical statement, but an oft ignored perspective about unemployment is that in fact it can be a period of immense monetary savings.
Let’s review some of the money-saving tactics:
Money Savings Tip #1 during unemployment
The monotonous grind and hectic work schedules can easily leave the most disciplined worker tired and stressed out over time. This leads to shift of focus away from strategic money-saving initiatives to tactical day-to-day handling of routine chores. Time is on your hands when you are unemployed. As the adage goes, Time is Money – remember to use it wisely to your benefit and work on a strategic money savings plan for yourself/your family.
Money Savings Tip #2 during unemployment
Create an income and expense tracking system. There are various tools available to do this. If you use online banking, most banks now offer inbuilt expense tracking systems that categorizes your spending habits. Get familiar with the tools offered by your bank. There are third-party software and apps that can automate this task across various bank accounts. Finally, you can create a simple spreadsheet in Excel to do this yourself.
The key is to track your expense category. Create some primary categories of expenses and allocate all expenses in to one of these categories. Keep it simple. You want just enough categories to understand your expense pattern but not too many that it defeats the primary purpose of simple analysis.
Readers can download this free Excel template that I created and use regularly to monitor my expense categories and income annually.
For cash only users, the task gets a bit tedious as you have to constantly input your daily expenses or save every receipt. The process is simplified for debit card and credit card users as you can easily download transactions and statements from online banking and categorize the expenses yourself at your convenience.
Note how I did not emphasize budgeting. I am personally not a fan of budgets, especially when it serves no purpose to categorize how much you should spend when you don’t even know where you spend it. Build up at least one year of expense category tracking before fussing over budgeting.
Money Savings Tip #3 during unemployment
For those eligible for Employment Insurance (EI) benefits there are several ways to optimize your EI earnings and stretch it to the last penny through tax savings strategies.
Besides regular and supplemental EI benefits, there is also special benefits available to Canadians such as parental leave. A key decision to be made here is who gets to take parental leave. Besides personal choice of maternal vs paternal care, one should take in to consideration the income effect as well. All things being equal, the lower-income earner in the household should choose to stay home. Special benefits also includes compassionate leave that allows an immediate family member to stay beside a loved one through their final days.
Regardless of type of benefits it is taxable income. Typically EI benefits equates to approximately 55% of pre-unemployment income. Even though the minimum federal tax rate is 15% the tax withheld from EI benefits is only 10%. However, if the annual income equal to or below $10,800 then no taxes are payable.
A key thing to remember about EI is that any additional income generated is deducted from the bi-weekly payments. The deduction does not include support income provided as a temporary relief from family members or friends.
Money Savings Tip #4 during unemployment
Unemployment is a strong impetus for getting that forever-planned-never-executed idea of starting your own business. A smart way to utilize tax savings opportunity through unemployment stage is to include your income earning spouse in the business (as registered partner or director of corporation). This eliminates sole-proprietorship as an ownership choice of course. But by having the income-earning spouse/partner in the business, you can work on the execution and day-to-day running of the business, while you have the partner run all necessary and eligible business expenses through his/her bank account (ideally having a small business credit card in the partner’s name is ideal for tracking such expenses). By doing this, you are able to reduce the spouse/partner’s taxable income (thereby increasing household savings) while enabling you to focus on your business.
This list is compiled based on my discussions with a tax adviser at H&R Block Canada who has sponsored this blog post. The information provided here is a general list for information purposes. Taxes vary among individuals so always consult a tax professional for certainty. I invite you to visit hrbtaxtalk.ca to view tax queries posted by others or post your own question. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this bulletin can be accepted by H&R Block Canada, Inc. or Larkycanuck.com
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- larkycanuck.com | Money Savings | Tax | Two simple tips on tax savings over holiday season (larkycanuck.com)
- Tips for Living on One Income During Unemployment (blogher.com)