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Comprehensive Guide to Creating a Budget: Income, Taxes, and Monthly Expenses

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This guide outlines the process of creating a budget by calculating gross monthly income, income taxes, and deductions. It provides a detailed breakdown of Mr. Machula's finances, including various tax brackets, Employment Insurance (EI), and Canada Pension Plan (CPP) contributions. Learn how to assess total monthly expenses and balance your budget effectively, with insights into unexpected costs. This practical approach will help you manage your finances better and achieve financial stability.

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Comprehensive Guide to Creating a Budget: Income, Taxes, and Monthly Expenses

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  1. Creating a Budget Mr. Machula

  2. Creating a budget • Gross Monthly Income • Income Tax • EI and CPP Deductions • Total Monthly Expenses • Preliminary Monthly Balance • Unexpected Expenses

  3. Gross Monthly Income • Annual Salary divided by 12. $74,880/12= $6240 • Gross Monthly Income is $6240

  4. Federal Tax Deductions • 15% on the first $43,561 of taxable income, + • 22% on the next $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), + • 26% on the next $47,931 of taxable income (on the portion of taxable income over $87,123 up to $135,054), + • 29% of taxable income over $135,054.

  5. Federal Tax Deductions • . 15% on the first $43,561 of taxable income 43,561 x 0.15= $6535 in tax $74,880 subtract $43,561= $31319 • 22% on the next $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), 31319 x 0.22= $6890.18 in tax $37,026+24,428= $61,454.82 13,425 in tax

  6. Provincial Tax Deductions • 10.8% on the first $31,000 of taxable income, + • 12.75% on the next $36,000, + • 17.4% on the amount over $67,000 Because the annual salary is $74,880; $31,ooo x 0.108 = $3348.00 $36,000 x 0.1275 = $4590.00 $7,880 x 0.174 = $1371.12 Total Prov Tax = $9309.12

  7. Total Tax • Federal Tax plus Provincial Tax= Total Tax $13,425+$9309.12= $22734.12 • $22,734.12 divided by 12= $1894.51 $1894.51 per month in Taxes

  8. EI Contributions • $195.50 per month up to $891.12 (Maximum for year) Based on a gross salary of 74,880, use the maximum of $891.12. $891.12/12= 74.26 per month

  9. CPP Contributions • Maximum Pensionable Earnings= $51,100 • Basic Exemption is $3,500. • Maximum Contributory Earnings $47,600 • Employee Contribution Rate is 4.95% • Maximum Contribution is $2356.20 • 74,880- 3500= $71,380 x 0.0495= $3533.31 • Because $3533.31 is greater than $2356.20, we use $2356.20 • $2356.20/12= 196.35 per month in contributions.

  10. Totals • Gross Monthly Income = $ 6240.00 • Income Tax (Fed+Prov) = $ 1894.51 • EI and CPP Contributions = $ 270.61 • Net Monthly Income A-(B+C)= D = $4074.88 Total Monthly Expenses = $1500 Monthly Balance (Net Income subtract Monthly Expenses) $4074.88- $2510 = $2574.88 Unexpectant Expenses - $200.00 Final Monthly Balance = 2374.88

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