Michael D'Angelo- September 2021
If you’re one of the fortunate people who have continued earning a regular income throughout the pandemic, you might be surprised at how much money you’ve saved over the past year or so. With fewer places to go amid waves of widespread shutdowns and stay-at-home orders, Canadians have had fewer opportunities to open their wallets, allowing savings to accumulate to new levels. If you are among those who saved more than they could spend, the question becomes: What should you do with those savings?
Weigh Your Options
Asking your advisor about what to do with any unexpected savings is a good place to start. Regardless of the amount of money you’ve saved, here’s a few possibilities for what to do with it:
Keep saving. There are many different options when it comes to saving money. If you find yourself flush with cash, why not explore the various savings vehicles that can keep your money safe while it earns even more, including:
1. Tax-Free Savings Accounts (TFSAs)
2. Registered Retirement Savings Plans (RRSPs)
3. Registered Education Savings Plans (RESPs)
4. Segregated Funds
5. Non-Registered Investment Account (Cash Account)
Talk to your advisor and take some time to see which particular account type best aligns with your needs and goals.
Eliminate debt. For many Canadians, eliminating debt has been a financial priority over the past year. The biggest debt for many is their mortgage – and low mortgage and interest rates have offered an opportunity to gain significant ground on balances owed on homes, lines of credit, loans and credit cards alike.
If lowering your current debt load is a constant challenge, negotiating a lower interest rate and a more flexible payment schedule with your lender, or perhaps arranging a debt consolidation plan that allows you to pay off your debt faster, could be a more manageable approach. Your advisor can explain the advantages of various credit and loan options that suit your circumstances.
Invest. Having some extra money set aside could serve as the perfect opportunity to revisit, and perhaps rebalance, your current investment portfolio. It may also be the time to consider an exciting venture into something new. Either way, begin the process by contacting your advisor to talk about how your future financial goals align with today’s markets. The advantage of an advisor’s insights is that they aren’t limited only to your investments, but can help ensure that your debt management, insurance, tax and estate planning needs are being looked after, which can take some of the worry away from the sometimes cloudy and confusing world of financial planning.
Prepare an emergency fund. If the global pandemic taught us anything, it’s that emergencies can and do happen, and maintaining an emergency fund is a practical way to enhance your financial preparedness for such an event. The goal is to set aside enough funds to help you avoid tapping into long-term investments, which could end up costing you much more in the long run. Consider what you can reliably afford and perhaps set up regular contributions that can be increased over time. Opening a new bank account specifically for emergencies and arranging automatic transfers will help grow the fund without constantly reminding yourself that you may one day be forced to use it. If an emergency does come along, you’ll be glad you took precautions.
Purchase insurance. There’s a saying when it comes to insurance. “Buy it when you don’t need it. If you wait until you need it to buy it- it’s too late.” Though life insurance purchases have risen during the pandemic, Canadians should also be looking closely at other types of coverage. For example, living benefits insurance includes disability, critical illness and long-term care coverage in case you become sick, can’t work and need financial support to cover costs. Pandemics don’t happen every day, but plenty of other scenarios can put you in a vulnerable position. Living benefits insurance is of particular importance for the vast number of Canadians who do freelance, contract or “gig” work without the protection of company benefits.
Spend wisely. As restrictions on activity and travel begin to loosen, people will predictably want to return to living a more exciting and familiar lifestyle. But don’t let your saving habits fall as demands on your money increase. Be prepared to get back into another good habit: sticking to a budget for everyday expenses – and perhaps for resuming some personal pleasures, such as vacations, once the economy fully reopens. Consumer spending is a key driver of the economy, from which everyone benefits, so if you have your sights set on helping to get things back to normal, consider warming up your wallet.
While there are plenty of options to help you make the most of your excess savings, talking them over with your advisor is a proactive way to improve your overall financial situation. With some money in hand and some new savings goals defined, you can have a comfortable balance between spending and saving.