It has now been more than 5 months since COVID-19 reared its ugly head. Over the last couple of weeks/months, things have slowly started to reopen. However, many people are still without jobs. According to StatsCan, the official Canadian unemployment rate is 10.9%.
Even if you heeded the good financial advice of having 3-6 months’ expenses on hand, those cash reserves are starting to dwindle. Between Feb-April, more than 5.5 Million Canadian workers were affected in some capacity by the shutdowns.
So for all those that have been affected, and even those who haven’t, how do you proceed from here? When the economy reopens, when you’re able to return to work, when things hopefully go back to ‘normal’, what should you do to get your finances back on track?
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Maintain Lower Expenses
During the shutdowns, a lot of people had their incomes slashed. With it, whether voluntarily or not, so were expenses. People are traveling less, eating out less, etc. Granted, you may have been spending more on snacking or on hobbies you could do at home to stay busy.
Overall, according to statista.com in the US, a lot of people are spending less on most things. At the high end, 77% of respondents reported spending less on going out. At the low end, 8% of respondents reported spending less on health and hygiene products as well as household cleaning products.
As life goes back to ‘normal’ or the new normal, keeping expenses low is paramount. There is going to be the temptation to spend more on going out or maybe taking a vacation. Resist the urge to spoil yourself.
There are many benefits to maintaining lower expenses; increased flexibility, higher savings rate, financial security, etc. We are not saying you should deprive yourself, but it is important to remember to spend within your means. Pay yourself first (save), spend second.
Financial flexibility is important. Especially in a time of economic uncertainty where the economy is propped up and interest rates are low. Where governments continue to have central banks print money causing consumers to lose faith in them and the dollar. Where businesses are overvalued and continue to rise in value.
Having financial flexibility will allow you to take advantage of opportunities and other people’s financial missteps.
Increase Your Savings
As we mentioned above, increasing your savings can propel you ahead. With COVID having drained a significant amount of reserves for many people, replenishing emergency funds is key.
By keeping expenses low, you will be able to increase emergency funds much quicker. With many people worried about a second wave, and more potential shutdowns, the quicker you can stash away money the better.
For more on emergency funds, read Emergency Fund 101.
In addition to your emergency fund, you may also need to review how much you are putting into your nest egg. Your nest egg is a sum of money or assets you have set aside for a specific purpose, usually retirement.
Back in March, the stock market was hit hard. At the low point in Canada is was down almost 35% year to date. The peak to trough decline was nearly 38%.
Due to severe downturns, some nest eggs were hit hard. If you are young, it’s not as big of a deal because you have a lot of time to rebound. However, if you are nearing retirement, those losses could mean less income in retirement or delaying retirement by a couple of years.
Yes, the market has rebounded significantly recouping most of those losses, but no one knows for sure when the next crash or correction is coming. For that reason, increasing your savings rate is a good way to ensure that your financial plan stays on schedule.
As time goes on we will continue to preach the importance of budgeting. You can think of having a budget and trying to stick to it as another goal you are trying to achieve. For more on goals read Defining and Achieving Financial Goals.
Having a budget, with some determination, can do wonders with helping you achieve your saving and financial goals. Below is a budgeting spreadsheet that we created. If you do not have one, feel free to use ours.
Tracking your income and expenses can be quite eye-opening. A good gauge is usually 3-6 months. After tracking everything for 3-6 months, you may be surprised how much of your money is going to certain things. Knowing where you are overspending and cutting back on certain things can increase your savings rate substantially.
Saving an extra $100 a month may not seem like a lot but over time, compound interest makes a big difference.
Ensure You are Employable
We mentioned this in How to Get Ahead Financially During COVID-19. Due to the forced shutdowns, a lot of people are out of work. Businesses are coming to a couple of realizations; 1) they may not need as many staff, as people are comfortable working from home; 2) they may not be able to open their doors when COVID is finally done.
According to an article on Yahoo News based on research done by Yelp, 41% of June business closures were permanent. With all these permanent business closures, there will be a lot of people looking for new jobs.
With so many additional people in the market for a job, and potentially your job, it is important to make sure you’re the best candidate. Make yourself irreplaceable at your current workplace. Maybe even learn a new skill that will help propel your career.
If you aren’t sure if you will have a job to go back to, dust off your resume now. It might have been a couple years since you updated it. Even if you have job security, it is still a good practice to update your resume every 6 months to a year.
In the end, we do not know how long COVID-19 will last. We also do not know what future economic effects it will have. It is better to be over-prepared than under-prepared. Continue to keep your expenses low, replenish your savings, start budgeting, and make sure you’re employable.
Let us know in the comments what other things you think people could/should do now or after COVID. We loving hearing our reader’s thoughts.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy