Personal Finance in a Time of Uncertainty

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Now is a tougher time than ever for a lot of Canadians when it comes to personal finances. COVID-19 has affected so many in a number of different ways. Setting up a strong financial plan will play an important role throughout the recovery of the economy in Canada. Setting short-term and long-term goals is important for your journey towards becoming financially secure. If you aren’t working toward anything you may end up spending more than you should be.

With everyone staying at home, this can be a great time to do your annual financial planning! Creating your financial goals and what you want to save for or achieve. Some examples include paying off debt, saving for retirement, saving for an emergency fund, buying a home, education funds, starting a business, or even saving for a vacation.

Financial Plan

Pay off debt: Student loans or credit card bills still not paid? Paying off your debt saves you the costs associated with interest. The sooner you pay these off the sooner you can use that money towards savings and investing.

Set a budget: Making it a habit to put away a portion of each paycheck will help you keep organized, stay within budget, and succeed in reaching financial savings goals.

Consider your dreams: Do you want to buy your first house or go on exciting vacations? Looking to upgrade your current house with a renovation, or save for your children’s tuition for college or university? Start planning out your goals and budget so you can save enough to achieve these financial goals.

Plan for retirement: Saving throughout your whole life will set you up well for when it’s time to retire. Creating good habits from an early age will help you by setting aside enough money on a regular basis. This will make a goal that seems unattainable within reach! A common rule of thumb is to save between 10-15% of every paycheck in a retirement and tax-advantaged savings account to help you put that money away effectively. Make compound interest your friend!

The Road to Retirement:

Plan Ahead: Estimate your hopeful desired annual living expenses and desired lifestyle so you can start saving today. Consistency is key and when you plan in advance and set up habits to set aside money on a regular basis, you will be able to achieve those retirement savings with success.

Automate saving: Use an RRSP or a TFSA (Tax-free savings account) to put aside money regularly and to commit to making those contributions.

Start early: Time is on your side when compounding interest is on your side. If you plan to save $100 a month starting at 25 years old assuming a rate of return of 6%, you would have approximately $190,000 extra for retirement by the time you reach age 65. Starting early pays off!

Financial Planning
Save your money for taxes if you’re a CERB recipient. The Government of Canada is helping Canadians during these unprecedented times. Those eligible for the CERB will receive $2,000 every four weeks. The CERB must be reported as income on income tax returns of recipients for the 2020 tax year. Keep this in mind and know and plan to pay the amount of tax required for this amount.

Mortgage
Around 600,000 people deferred their mortgage or skipped a payment as of April 8th, according to the Canadian Bankers Association. Deferring your mortgage may make it go away for 6 months but could come with a cost. Know the facts so you can plan for the future including what interest rates you will need to pay.

Investing:
Investing in stocks is a great way to build wealth. When the market is down, stocks can be a long-term investment as historically prices will eventually rebound. Berkshire Hathaway Inc.’s Vice-Chairman Charlie Munger recommends “ At your absolute climax of fear, you must do the exact opposite of what you want to do.” Speak with a financial advisor if needed to get recommendations on how to best invest your money.

Insurance:
There are some opportunities to save on insurance during these times, for example where you’re driving less to work. You may be able to save on your auto insurance premium depending on your situation. Speak to a licensed insurance advisor to see where you can save on your insurance.