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The Hidden Tax Rate: Government Programs And Their Claw Back Rates
There are many government benefit programs that are “income tested”.
You might be asking… “What does “income tested” mean exactly?!?”
This means that the benefits you receive will fluctuate with your net income.
Higher income means lower benefits. Lower income means higher benefits. For low or moderate income households this becomes a very important consideration when creating a financial plan.
At the most extreme, a family with two children earning around $50,000 can expect to lose 32.5% of the next dollar they earn due to these benefit claw backs. This is on top of their marginal tax rate of 29.65%. That means that between claw backs and income taxes over 60% of the next dollar earned will go to the government. Ouch!
While this is an extreme case it does illustrate the impact of these claw backs on certain income levels and family types.
The challenge with these benefits is that the calculation is often not straightforward. Specific rules and claw back rates are often hidden and not easily found. There are also considerations like marital status, number of dependents, disability, income and deductions. This makes it difficult to understand your particular claw back rate.
In addition, many income tested benefits are not based on gross income but on net income, more specifically adjusted family net income (AFNI). In the most basic sense this is your gross income minus any deductions.
One of the most interesting financial planning opportunities this creates is with RRSP contributions.
RRSP contributions are considered a tax deduction and will decrease your net income. This in turn will increase your government benefits. That’s right, the government will increase your benefits today if you save for the future. For low and moderate income households this can sometimes make RRSP contributions more appealing vs TFSA contributions.
This is a BIG post, there are eight government programs we’ll cover.
For each benefit program, we include the benefit amount, the claw back rate and the income level at which the benefit disappears entirely.
House Hacking Your Way To Zero Housing Costs
Today we have a guest post about house hacking from Erik. Erik a personal finance and self-improvement junkie who blogs over at The Mastermind Within. House hacking is one of those things I wish I knew about when I was a bit younger. It’s entirely possible to house hack your way to zero housing costs. Housing represents 35% of the average household’s budget so reducing that, even by a little bit, can mean a huge increase in your capacity to save.
In this post, Erik shares the 5 reasons why he believes house hacking is the best early age wealth building strategy. I hope you enjoy it!
Eating Healthy For Less
Eating healthy can be hard. It can also be expensive. But it doesn’t have to be either these things. With a little work, eating healthy can cost you less than you currently spend on groceries each month.
For the average household, groceries account for over 10% of their annual spending. That’s over $6,100 per year! If you have children it’s even higher; families with children have an average expenditure of $8,753 per year!
Cutting 10-20% from your grocery bill can mean $1,000’s per year in savings. Saving money on groceries can help you fund the simple retirement plan or help you reach other financial goals.
But saving money on food doesn’t mean eating crap. Below you’ll find seven different ways to cut down on your grocery bill and still eat well.
In our home I’m responsible for 80-90% of the cooking and because I do most of the cooking I also do the meal planning and grocery shopping too. This means the grocery budget is entirely my responsibility.
For the four of us, two adults and two children, our grocery budget is $4,800 per year. That’s $400 per month or about $100 per week. We spend about 45% less than the average family with children.
To make this work we use the seven strategies below to help reduce our grocery budget while still eating healthy.