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So…What Should We Do with Our Money Now?

Save? Spend? Stash it under the mattress?

For savers and spenders alike, 2020 has done a number on our financial lives. Uncertain, uncharted, unprecedented: Whatever hyperbole you favour, it’s safe to say that “a global pandemic that shuts down the entire global economy” was not a line item on any of our budgets, however carefully drawn up.

Whether your world has been turned upside down by an out-of-the-blue layoff or furlough, you’ve found your income drastically reduced or even if you’re among the lucky ones who are still employed, it’s never been more confusing to figure out what we should be doing with our money (and that’s if we’re fortunate enough to have any). Is this a time to start saving money? Should you spend to “stimulate the economy?” Take a punt on the stock market? Empty out an ATM, put the cash in a sock and lie starfish in a darkened room? 

Enter the money expert! We called up Kelley Keehn, an FP Canada Consumer Advocate and personal finance educator who’s been in the business for more than 20 years. Keehn is also the author of Talk Money To Me, a straightforward, non-judgy guide to getting a handle on your finances. In other words, she’s just the person to take a little of the confusion out of our collective money situation.

If you’re still employed and it feels like your job is safe for now, what should you do?

“The first thing you should do is take stock of where you’re at financially. What do you owe? When are the payments due? We’re all super-stressed right now, and it’s easy to accidentally miss payments or be charged an NSF [non-sufficient funds] fee, which are costly and hurt your credit score. And obviously, just because you’re working doesn’t mean that you’re not scared about money or that everything’s fine. Fifty per cent of Canadians were living paycheck-to-paycheck even before the crisis. This is a great time to talk to a professional, like a certified financial planner, and just get some guidance, whether you need it right away or not. Many are offering pro bono work at the moment, and most will give you a free consultation.”

If you’re still employed and you’re putting money aside for retirement or investing it, do you keep those savings up or squirrel everything away to have cash on hand?

“This depends on whether your emergency savings are topped up. Most experts recommend having three to six months of living expenses available in cash. If you don’t have that, you might consider stopping your investments and funnelling that money into emergency savings. You should also consider getting a line of credit now, while you’re employed, even if you don’t need it.”

Speaking of credit: Should you be prioritizing putting money aside for your emergency savings over paying down any debt?

“There isn’t an easy answer to this, and it depends on whether you’re in good standing with your bank. For example, there’s a case study in my book where someone had a history of late or missed payments on his account. At one point, he used a windfall to pay down his credit card, thinking that would then give him back room on his credit limit. Instead, the bank lowered his credit limit, which they are allowed to do whenever they want. This doesn’t happen very often, but it can.

That’s why if you’re experiencing financial hardship and you haven’t been great with your credit card, you should think about paying it off slowly and make sure you’ve got some emergency savings. All things being equal, however, it does make sense to pay down your credit card—unless you’re tempted to run it back up again, of course.”

Should you be doing any fun spending? It’s so hard: You want to help support businesses, but you also want to be careful in case you find yourself in a tricky spot soon, too

“If you can tick a few boxes—your job is good, you’ve got emergency savings, you have low or no credit card debt, you’re saving into your RRSP or a TFSA—spend away! Don’t feel guilty to be spending when other people aren’t. In fact, retailers need you to spend.”

If you were planning a big purchase, like buying a home or car, is it sensible to put it off until things are more certain?

“Again, it’s about ticking those boxes, but also knowing your comfort level with your own situation. If you’re uneasy about your industry, by this point you should know what direction things are headed, or at least be seeing the warning signs. For those who seem to be weathering the storm, however, and there’s no reason anything will change dramatically, you’re probably going to get a heck of a deal.”

If you’ve had any money in investments, you’ve probably seen its value take a sharp nose dive. Should you sell them and get what you can in cash before it gets worse?

“Taking your money out of your portfolio just because you’re freaking out about the market is a bad idea. It’s been said that your investments are like a bar of soap: The more you touch them, the more they melt. If you sell at a loss, you’ve crystallized that loss. For now, it’s just a paper loss. It’s hard to stomach, but you don’t want to be acting out of primal emotion here. That’s why it’s helpful to talk to a professional, who’s got a cool head, level thinking and can help you make a plan. No one can predict when we’re coming out of this, but most people should just stay the course.”

Is there anything people overlook that you can do to make an instant difference?

“If you haven’t filed your taxes, and you think you might get a refund, file them! And if you haven’t filed them in a few years because you’re low or no income, file them because otherwise you could be missing out on the GST credit or the child benefit.”

If you save into an RRSP, should you be thinking about dipping into that savings plan?

“Other than a payday loan, please make this your last, last resort. If you take money out of your RRSP now, it’s a triple whammy: They’re going to withhold tax now, so, for example, if you take out $1,000, you’ll actually end up with less than that in hand. You also have to claim that as income, so you may pay more tax in 2021. And you probably are also crystallizing losses. I would never recommend taking on more debt, but it makes more sense, if you can, to take out a line of credit before you cash in your RRSP.”

If you’ve been laid off, furloughed or just lost most of your income, what’s the first thing you should be doing with your money right now?

“Don’t make any sudden moves. Start by making sure you know every single cent you have to spend—what are your utilities, your mortgage payment, your rent—and make a list of when it’s due and how much the cost is.

If you’ve got an emergency savings account, you’ve got a bit of a buffer. If you don’t, figure out who’s going to be the most flexible, who will play ball and negotiate. Call your landlord, your utility company, your bank. The last I heard was that banks are working with customers on 90 to 95 per cent of requests to defer payments. If you’re a homeowner, most banks already have a ‘skip a payment with no penalty’ option on your mortgage, and that could put a couple grand in most people’s bank accounts.

Most municipalities are allowing you to defer your property taxes, and if you’re a small business or self-employed you can defer your HST until June 30, 2020, and you don’t have to file your personal taxes until September. Get a complete picture, and then you can come up with a plan, and you can make informed decisions. Don’t put your head in the sand, as tempting as that might be.”

 

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