How to pandemic-proof your paycheque
Back in January 2020, we didn’t think about something like pandemic financial habits, but recruiter Cynthia Coulis is now saving 20 per cent of her paycheque just in case. “I work on a contract basis and so I never know how long I will be working. If the pandemic lasts a long time, I will be in good shape to continue living my lifestyle without too many changes.”
Why you need to think about your pandemic financial habits
Whether you’re a contractor or employed full-time or part-time, the effects of COVID-19 hit many people hard financially. As Canada moves to reopen the economy, people are still concerned about the long-term effect on their finances.
Millions of Canadians lost their jobs. Statistics Canada’s monthly job survey found that from February to April, 5.5 million workers were affected. This included a rise in unemployment of 3 million and a COVID-related increase in absences from work of 2.5 million. In June, employment rose by nearly one million, building on the 290,000 jobs added in May. Overall, employment is picking back up, which is good news for job seekers and reassuring for people who are employed, but we’re not clear yet. If you are employed, what can you do to pandemic-proof your finances just in case?
Start an emergency fund
“[The pandemic] has been a much needed wake-up call for a lot of people in terms of their financial situation,” says Darryl Brown, a Chartered Financial Analyst and independent investment consultant at You&Yours Financial. He says that if people are not thinking about setting aside savings, they should take the opportunity to start an emergency fund.
Standard advice is to save three to six months in your emergency fund, but that can vary. If you are able to apply for employment insurance (EI), you could opt to save less as EI will cover some of your living expenses. If you won’t get EI, it’s better to save six months of expenses at least. It’s better to save as much as you can due to the uncertainty around how long the impacts of COVID will last and its long-term effects on the economy.
Re-evaluate your investment strategy
“People tend to think about their investments and savings as a bit of an island,” says Brown. “They put their money in the stock market and hope it goes up. That’s how we’ve been trained to think about that.” He says that with COVID-19, if you feel like there has been a change in your job security, that might mean a change in how you think about investing. “Maybe you need a less aggressive portfolio or maybe you need more in terms of your savings or expenses.” This could mean shifting your asset mix to more bonds and fixed income versus equity funds.
People are trying to survive right now, says Brown but he says that when you have the mental space and feel comfortable, take the time to map out your goals and objectives for your pandemic financial habits. “Take stock if there’s any change there and how you might be feeling,” he says, then use that to see if you need to adjust your investment strategy.
Pay off debt
Canadians carry a lot of debt, and this situation has increased that. Our debt-to-income ratio is now 176.9% as of June 2020. So if you have debt, try to pay it off as quickly as possible. Continue paying items like mortgages and car loans because you need shelter and a way to get to work and to buy groceries. Then look at any remaining debt and start with the one with the highest interest rates, such as credit cards. Put any extra money towards paying it off, then move on to the next debt. While you do this, continue to pay the minimum payments on other debts so you don’t miss a payment and take a hit to your credit score.