There are people coming out of this lockdown with more money than they have ever seen. While there are others who are forced to move in with family because they have lost their livelihood and can no longer afford to support themselves. I call this the great Covid-19 divide.
Regardless of how this pandemic has affected you, I am sure you’ll agree that we couldn’t continue on the trajectory that we were on pre-pandemic. Where we owed $1.74 for every dollar we made. Where the monthly eating-out budget for a couple was an average of $500, while only making the minimum payment on their credit card debt. And as if that was not bad enough, they had no savings. Medical experts are saying that we need to expect this pandemic to last a bit longer and also, we should expect more similar crisis in the future. They are going so far to say that this is not “the big one”
According to a recent MNP survey, 49% of Canadians say their debt situation is better, BUT 51% are more worried about their debt situation.
How many of us can survive another lockdown where our income is negatively affected?
How many of us are confident, that should we end up in a crisis situation, we will be ok financially – my guess, not a lot of us.
But still, there is good news. On average, Canadians saved about $5,574 during the lockdown and the household debt dropped from $1.74 to $1.72 for every dollar earned. So Canadians not only saved, but we paid down on some of our debt. Bravo!
A word of caution though. Economists are predicting that as the economy reopens, that $5,574 we saved, may burn a hole in our pockets as we give in to pent up desires to eat out and shop – things we weren’t able to do during the lockdown. Things that we loved to do but were denied. Some economists are even expecting economic activity similar to the roaring 1920s. Hmm, maybe we will have a roaring 2021 – 2029? The thing is, we don’t know, which is why we need to be cautious.
So, whether you are doing well financially or struggling to get back on your feet – I believe you can apply some money management tools and principles to safe guard your finances for the future and make your finances pandemic-proof.
To do this, you’ll want to continue saving, while still enjoying the things you used to love. Things like eating out at restaurants and going on vacations. You want to continue paying down debt as well. It’s about trying to find a balance and not living beyond your means.
The place to start is by creating a budget:
- Add up all your various forms of monthly income (regular work income, child tax benefit, child support etc.)
- List ALL your expenses and then add them up.
- Are your expenses less than your monthly income? If yes, this means you have a surplus and this is fantastic, congratulations!
- If you have debt, throw some of the surplus on your debt and save some of it. I usually suggest an 80/20 division.
- Are your expenses more than your monthly income?
- If this is the case, reduce or eliminate some expenses if you can.
- Also, you can find ways to increase your income. If you can reduce some expenses by $200 a month and get a second income of about $700 a month. That’s a total of $1,000 a month that will help you to balance your budget, pay down debt and start saving.
As a financial literacy expert, I am thrilled to see that we are saving more and that we are paying down debt faster than we were pre-pandemic. Well done Canada! Now let’s stay the course. I believe we can continue on this positive trajectory if we focus on being more intentional and purposeful with our money. Please reach out if you want to learn how.