✔ Many Canadians are recovering from financial setbacks due to COVID-19
✔ It’s important to create a budget that supports your long-term goals
✔ Work on rebuilding your savings and creating an emergency fund
These continue to be ‘strange times’ we’re living in but it’s important to remember that like all storms, this too shall pass. We are beginning to see the result of our efforts to stop the spread of COVID-19, and are getting closer to the light at the end of the tunnel. Things are still difficult for many Canadians, but you’re not alone and we’ll get through this together. We are here to help!
We recently addressed the financial strain many families are experiencing due to the ongoing COVID-19 pandemic. Sudden income loss has created a financial emergency for many Canadians and even as some return to work, there is much to rebuild. In part one of this series, we addressed the need to pay down debt and improve your credit score in order to recover from a financial emergency. Now, in part two, we’ll look at how to create a budget to support your goals while building that emergency savings fund.
Create a new budget
One of the best ways to rebuild and strengthen your finances is to create an effective, realistic budget that takes all of your needs and goals into consideration. One of the biggest mistakes people make when creating a budget is mapping out a plan that is unrealistic for their income and/or expenditures. Even when made with the best of intentions, a too-strict budget is doomed to fail and can lead to shame when you inevitably overspend. Instead, aim to create a plan that is strategic and ambitious yet attainable.
When creating a budget, a great place to start is with categorizing your monthly finances. You can break everything down into two simple categories: what comes in and what goes out. Simply put, you need to know what you’re spending and what you’re saving, and have a plan that addresses debt, savings, fixed expenses (rent, car insurance, etc) and variable expenses (groceries, entertainment, etc). In a successful budget, your income will meet or exceed your expenditures. Ideally, there should be a small buffer or miscellaneous expense line to account for unexpected costs (for example, if your car needs repair). This buffer is particularly important if your income varies from month to month. Here’s a great guide to creating a budget that actually works.
In order to stay on track, be mindful of your spending habits. When you’re considering different purchases while living on a budget, ask yourself if they’re really necessary (or worth it). It’s ok to treat yourself sometimes, but it should be within the guidelines you’ve set for yourself in a budget. For example, if you’ve set aside $50 a week for entertainment, anything goes until you’ve hit that limit - online shopping, ordering takeout, whatever you choose to spend that money on. But if you’re spending outside the limits you’ve set for yourself, your budget cannot and will not be effective. Here is a fantastic post on how to approach discretionary spending.
Rebuild your savings
The average Canadian has approximately $200 in savings - an amount that is not enough to cover food, housing or other necessities of life for a single month, let alone an extended period of time. This lack of emergency funds can become problematic in situations such as the current COVID-19 pandemic. While you can’t go back in time and create the savings account you wish you had, there are ways to incorporate savings into your budget and prepare for the future.
Consider setting up an automated banking transfer that deposits a small amount of money into a savings account on a weekly or bi-weekly basis (perhaps on the day you normally get paid). Whether it’s $10, $25 or $50, this money will add up and in time, you will have created a substantial emergency fund. The secret is to be consistent and only touch that money in a true emergency - otherwise, you won’t benefit from steady accumulation.
It may be best to talk to your financial institution about the best option for your emergency fund, whether it be a low-fee bank account, a TFSA or a high interest savings account. They can also help you set up automatic transfers as needed.
Federal resources, personal loans and more
The federal and provincial governments have introduced a variety of measures designed to support families during this challenging time. To learn more about federal financial relief measures, please visit our COVID-19 Resource Centre. The Canada Emergency Response Benefit is one of several measures that may help you at this time. We will continue to be updated in the weeks and months to come, so please check back regularly.
If you would like additional financial guidance or have questions about accessing a personal loan to help get your family through this time, please reach out to your local easyfinancial branch or easyhome branch. You can also give us a call at 1-888-502-3279.