For many Canadians, the COVID-19 pandemic has changed our livelihoods in some way or another. And since roughly six months have passed since social distancing, face masks and “bubbles” became common vocabulary, we thought we’d take a minute to reflect on some of the silver linings that the pandemic has brought us. While a lot has happened since Canada’s quarantine began, we are personal debt specialists, so bread recipes, Tik Tok dances and Animal Crossing aside, here are 3 things that the pandemic has taught us about personal finance.
#1 – The Importance Of An Emergency Fund
You’ve probably heard people talk about the importance of an emergency fund before, but how many of us took the advice and saved up for one? According to the 2019 Canadian Financial Capability Survey done by Statistics Canada, 1/3 of Canadians don’t have enough savings to cover 3 months of living expenses and roughly the same amount of people surveyed said they wouldn’t be able to come up with $2000 in a pinch if they needed to.
With many households facing a complete loss or reduction of income at some point during the past six months, there’s a good chance that people had to dip into their savings to bridge that loss of income or to pay for unexpected expenses. If those emergency savings were nonexistent or tied up in an RRSP or other investments, you may have had to borrow from credit or a loan to make a payment in a pinch. While lines of credit and credit cards have more manageable interest rates, if you relied on “quick loans” such as payday loans, to cover your expenses, you would have paid high fees and higher interest rates, potentially putting yourself further into debt.
In order to avoid relying on borrowed funds in the future, start saving towards your emergency fund as soon as possible. If you were lucky enough to save money throughout the pandemic whether that be through reducing transportation costs, or working more hours as an essential worker, consider using some of those savings to jump start your emergency fund. For other tips on how to start an emergency, check out our blog: Saving For A Rainy Day: A Guide To Starting An Emergency Fund.
#2 – Budgets Can’t Be Static, They Need To Be Adaptable
Just because your budget has been working for you over the last few years, doesn’t mean it always will. We can’t only adjust our budget when it comes to our expenses, we need to ensure we are updating our budget to reflect changes in income, debt repayment, savings and taxes as well.
Each component of a budget could change in an instant, and for many Canadians, there probably was a change to their budget during the pandemic. Maybe you received more hours as an essential worker and wanted to put some of your overtime pay towards your debt? You’d have to update your budget. Maybe you were receiving CERB payments but had never needed to save for income taxes before? You had to add saving for income taxes into your budget. Or what if you or your spouse had to stay home with the kids, therefore your household income and spending habits changed? You most definitely had to update your budget.
Pandemic aside, budgets need to be adaptable and reviewed regularly. Not only does your budget need to change with increased spending, a change in income or when you acquire new debt, but also when you change your financial goals, or when a new life event occurs. When creating your budget, make sure you are using a format that is easily adjustable. If you are using a spreadsheet, an app or computer program, it is probably fairly easy to make these adjustments. However, if you are using the envelope method, pen and paper or collecting receipts, you may have to sit down and reorganize your budgeting process to reflect the changes.
If you’re looking to update your budget, or create a budget for the first time, check out our blog: How To Make A Basic Budget – And Stick To It for budgeting tips.
#3 – It’s Okay To Ask For Help
Every now and then we find ourselves in a position where we need to ask for help. We’ve exhausted all our options and realized we can’t achieve what we need to on our own. For some, asking for help comes easily, but in the case of asking for help when it comes to our personal finances a lot of people struggle to do so.
If there is one silver lining that has come out of COVID-19, it’s that it helped reduce the stigma around asking for financial assistance. Millions of Canadians applied for the CERB and other government income support programs. Hundreds of thousands of people signed up for mortgage deferrals and reached out to banks for credit card payment deferrals. When the pandemic knocked them off their feet financially, they looked for a plan and asked for help when needed.
What will happen over the next few months is still very much unknown. As deferral programs and the CERB begins to end, many Canadians may find themselves again in a tough spot financially. Naturally, you will want to sort out any financial troubles on your own, but it’s important to review all your options before you make any large decisions. Take what we’ve learned from this time and ask for help. Consult a banker, a financial planner or a trusted family member or friend.
If the situation has grown to something you can no longer control on your own, reach out for further assistance from a trusted professional like a Licensed Insolvency Trustee. We offer free personalized debt consultations that explore every relief option available and explain what each will look like given your specific situation. To book your free consultation, fill out our consultation form or call your local Grant Thornton Limited office.