When I ask the question, “what do you spend the most money on?” what pops into your head first? For many it will be their mortgage/rent, maybe their car, hopefully you think it’s your retirement savings. The answer, for the “average” household at least is taxes.
Many of us don’t think about how much we pay in taxes because we don't “see it”. Your income tax is deducted right off of your paycheque, sales tax is baked into the price of everything you buy, gas tax is already factored into the price at the pump and for many of us our property taxes are merged directly into our mortgage payment. How often do you actually write a cheque out to the government? The last time I can remember doing that was when we bought our second house and we had to pay “land transfer tax”, which is a tax paid by the buyer of real estate in Canada.
It was with stung quite a bit to write that cheque to pay the land transfer tax. Which, I assume is why the vast majority of taxes are “hidden”. If I were to ask you how much tax did you pay last year? less than .0001% would be able to give an accurate answer to that question.
You Spend 44% of Your Time Working for the Government
For those of you have read my work, you know that I like to express the true “cost” of the things we buy in terms of time in addition to dollars and cents. That is why I find this report by the Fraser Institute so interesting. In this report they find the average household income in Canada in 2018 was $115,724 and the average tax bill was $50,464. That is nearly 44% of your income, spent on taxes.
They put it in another more interesting way, if the average household had to pay the full $50,464 on January 1st, they would need to work until June 9th to pay off that tax bill. So if you have an “average income” you spend the first 160 days of the year working for the government and the remaining 205 days working for yourself and your family.
If you live in Canada you can find out your personal “tax freedom” day here.
Clearly, Taxes are a Big Factor In Personal Finance
I spend quite a bit of time in this blog, discussing ways in which you can save more of your money, and invest it. I have not spent nearly any time talking about taxes, which is a big problem considering it is our biggest expense in life. I briefly touched on Registered Retirement Savings Plan’s (RRSP) which can reduce your taxable income while you save for retirement. Clearly you can save on sales tax if you become more frugal (buy less things that you don’t need).
What about income tax and property tax is there a way to minimize those expenses? Of course! and I am going to dedicate some serious time to researching ways you can “hack your taxes” and share whatever I find with you through this blog. Stay tuned!