Planning for Next Year, Tax Basics, Tips & Advice

You Got Your First Job…Now What?

Getting that first job is a major milestone in our lives; it becomes the first time we start earning employment income, managing our own money, and even dealing with taxes.  Now that first job might not be glorious…speaking from experience working at fast-food restaurants in high school…but it is a rite of passage.

With summer here, it is a reminder that often our first jobs growing up are summer jobs. School is done, we can hang out with our friends and family but we can also earn some pocket money or money we might need for when we go off to college or university.

Whether a great job or not, there are things that this first job prepares you for when it comes to future work and your finances.  Let’s go over some of the essential points:

What to Expect on your Pay Stub

Getting your first pay stub might be a bit confusing. Your pay stub is a slip of paper that accompanies a pay cheque or that you get when your pay is automatically deposited into your bank account.  There are things on this document that you should review and be aware of.

  • Your gross pay – surprisingly, there are a lot of people that don’t review their pay stubs to ensure that they have been paid correctly for the right amount of hours and at the correct rate; it is up to you to check this and bring it to your employer’s attention if you find an error
  • Deductions – statutory deductions (ones we must pay) are CPP, EI, and Income Tax. Everyone, regardless of age must pay into EI; however, unless you are over 18, you should not see a deduction for CPP. Income tax withholdings will fluctuate based on what you have earned or the details you provided when completing your TD1 forms (didn’t fill 2 of these in when you started? Speak to your employer)
  • Vacation pay – this is an amount that is calculated as a percentage of your gross wages earned for the period you are being paid for, based on the term of your employment, and where you live. To learn about what you are legally entitled to, review the employment standards for your province. Some employers will pay out the earned vacation with each pay while others “accrue” it (hold onto it), so you will be paid that money when you actually take time off. Either way, it should be on your pay stub. 

Planning and Saving

Sure, these first jobs are often for spending money but there comes a time when planning for future purchases needs to happen, which then results in the need to save.  Planning your spending and saving for future spends is all about financial literacy and understanding the value of the money we are earning and how best to use it. Once you start earning your own money you need to learn how to manage that money so it can be the most effective for you.

So how do we start managing our money?

  • Determine how much money you will set aside for savings with each pay cheque and be sure you do it. Tip! Many employers can split your net pay to go to two different accounts, so perhaps ask them to do this so your savings amount goes automatically to that account without you having to remember to move it yourself. Out of sight, out of mind!
  • There’s an APP for that!  There seems like there is an APP for everything and this is no exception. Intuit’s MINT personal finance APP (which is free) will help you keep track of your spending and budget the money you have coming in and going out.  It is never too early to get a good handle on your finances!

Income Taxes

Earning money comes with responsibility and financially that means paying taxes and contributing into government programs. As you will see on your pay stub, there is a portion of your gross income that is being withheld from you.  These amounts are sent to the Canada Revenue Agency (CRA) from your employer to make your contribution to programs like CPP (Canada Pension Plan) and EI (Employment Insurance). Your employer also makes contributions to  your CPP and EI as well, but often you don’t see those amounts on your pay stub.

Income tax however, is a bit different.  This amount only comes from you and is calculated on your earnings and estimated earnings for the year.  When you started your job your employer should have had you complete two forms, both called TD1s, but one is for federal income tax and the other for provincial income taxes.  These forms tell your employer how much income tax to withhold from your pay based on your personal tax situation. 

In February you will receive a T4 slip, that outlines all of your employment earnings and deductions; you should receive one for every job you held in the previous calendar year.  These forms give you the information to complete your income tax return.  The hope is that your employer withheld enough income tax from each of your pay cheques so you won’t owe anything when you complete your tax return.  In some cases however you might owe or perhaps you will actually get some of that income tax you paid back to you.

Congratulations on starting that first job; go enjoy yourself, meet some new people, and create some great memories and some good money habits!