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#1 Thing You MUST Do When Receiving the CERB

The Canada Emergency Response Benefit (CERB) was released this week. The CERB provides $500 a week for up to 16 weeks for those impacted by COVID-19.

Here’s what you need to do to maximize the benefit and avoid financial burdens in the future.

But first, let’s be honest - when you find yourself in financial difficulty it’s easy to ‘dream’ about what you would do differently to manage your money in the future. But the minute the money re-enters your hands all of those well-meaning thoughts of saving, planning for the future, not just living for today, etc. go out the window. We are creatures of habit. And it can be so easy to slip back into those not-so-great money management habits when you receive the financial relief you so desperately desired. Let’s avoid that.

Here are 3 things you should do when receiving the CERB:

1. SAVE THE TAXES

IMPORTANT!!!

The CERB is a taxable benefit and the CRA is not withholding taxes at the time you receive the benefit. This means that when you file your 2020 tax return you will have to report the full benefit amount that you receive as income and pay taxes on this amount. Typically when you get paid by an employer, your employer will automatically remit your taxes to the CRA before you receive your pay cheque. In the case of the CERB you won’t have this luxury and it will be up to you to save the taxes that you will owe. If you don’t, you may find yourself owing a significant amount at tax time which you’ll either have to cover by using debt or depleting your savings.

Here’s how you can avoid that:

a. Determine your marginal tax rate. If you don’t know your rate, you can use last year’s tax return if your income hasn’t changed significantly.

b. Open a separate savings account and designate it for taxes.

c. EVERY WEEK when you receive the CERB transfer a percentage based on your tax rate into the savings account.

Now come tax time, you’ll have the money you need to pay your taxes.

It can be tempting to want to use all of the money but remember, this is the perfect time to change your money mindset and habits and create a new financial way of being.

 

2. BUILD YOUR EMERGENCY FUND

Everything in our world is so uncertain right now. We don’t really know how long this may last or if something else will hit us right after. Being money smart means being financially prepared. An emergency fund is the key to creating financial stability in times of uncertainty. Your emergency fund becomes your ‘pay cheque’ that you use to pay yourself during these times and ensure your household is financially secure.

Take a set amount from each CERB payment to build or start your emergency fund. Having an adequate emergency fund also reduces the need to use debt during these times.

 

3. MONITOR YOUR SPENDING

It can be very tempting to want to revert to old spending habits as soon as you receive your benefit. Avoid unnecessary emotional spending at all costs. Review your monthly expenses and determine the true necessities. Create a spending budget that you can stick to until this is all over. If you have additional money left over put it towards reducing your debt or building your savings. This is not the time to get ‘money happy’ and spend like it’s your last days. We don’t know how long this will truly last and for now the Government is only guaranteeing support for 4 months.

Maximize this financial gift to the fullest.