Most nights we go on a walk, and this is usually when whatever thoughts I’ve had that day come bubbling up. This past week, I’ve been chatting to Jan mostly about pandemic finances. Of course, we’ve come up with lots of questions, so I’ve also been bugging my parents/friends/colleague/accountant. Here’s what I’ve been wondering, and what I’ve learned so far! Remember I’m in Canada, so this might look different based on where you live!
We are so lucky to have our jobs, but many of my patients have been asking about assistance, so I made it my first job to learn more about what’s available to Canadians- it’s a lot more than the Canada Emergency Response Benefit (CERB). There are a few good summaries online, and I like that Canada’s government website has organized their programs by category- remember you may fit into more than one!
Should I file my taxes? When are they due anyway?
I think (and my accountant says!) you should do your best to file your taxes ASAP (they are due on June 1st this year, but usually due on April 30th). Once you file, it will only take a couple of days for you to get a direct deposit if you have a tax refund. If you owe, though, you have until September 1st to pay! Remember that if you are self-employed (like me!) and pay instalments through the year, these are also deferred to September 1st. Deferral is interest-free! I plan to pay just a couple of days before, around August 28th, to avoid any tech issues if the system is overloaded that day.
Should I defer any payments if I don’t have to? What does that process look like?
Aside from tax payments, which are interest free, it is probably NOT a good idea to defer other payments unless you truly have no other option. This is because you are still accruing interest on your loans, including mortgage payments, car payments, and student loan payments- just to name a few. This means that your subsequent payments will go up. I found a nice explanation with examples here. They also make the great point that we don’t know how deferrals will affect credit scores… not really something you want to test out. Of course, if you have no other choice, my best advice would be to speak with someone at your bank and make sure you understand what the situation is- ask questions like how long you can defer, what payments will be like afterwards, if it will affect your credit score or future lending.
Should we pause our investing, especially in locked funds? I’m looking at you, RRSP contributions.
We agonized over this one! Obviously no one needs me to tell them that the market plummeted in March. I worried that by continuing to invest, we would just be “catching a falling knife”- that we’d put money into our portfolios only to see it worth less in the following days and weeks. Obviously, we also can’t easily pull money out of our RRSP’s if we get nervous about things. I’ve learned that the answer is NOT to change your investing rate, but rather to make sure you are comfortable with the level of risk they’re set to. Pause your contributions only if you must, like the mortgage deferrals above. If you still have your income, try not to change your habits out of fear! Investing now may actually give you better value for your money in the long run. We’ve kept our investment contribution routine as usual.
Should I change my daily/regular spending?
Being in health care, I have a uniquely fortunate situation of knowing that my job is really secure (and I know this is a luxury!). Even still, I’ve found myself thinking harder about purchases. We’ve definitely chosen to focus our spending on local small businesses, and I have really reined in all discretionary spending (clothes, treats). I’ve also found that because we are doing our grocery orders once every few weeks and we haven’t been to the store, I’ve really focused on stretching our dollars and using what we have in the pantry and freezer. YNAB (more on how we track our spending here) reveals our discretionary spending is down about 30%. Things we aren’t spending on: last minute or impulse groceries, coffee/breakfast out, new clothing, transportation, travel.
Some of our spending categories have gone up, just not as much. These are: dining out (we have a new once per week local takeout routine), entertainment (I’m buying books instead of using the library), donations/giving.
Should I adjust my goals for the year?
I don’t know! If you’ve been able to keep your usual income, then your goals will probably be about the same- maybe more if you’re saving more (not traveling, not commuting, not going out for fun). But, if that’s not true for you, that’s totally fine. You can put your goals on hold and reassess after things have settled. Maybe this is a good time to think about financial goals if you haven’t set them previously. I usually give myself the following amounts to aim for: total RRSP contribution, total TFSA contribution, total mortgage lump sum payments, savings for taxes, and any big purchases we plan to make (most recently our wedding, before that, our house down payment, etc).
How can I make sure I’m ready if things get worse? What did I do to get ready for this in the first place?
I made extra, extra sure that we are ready for a financial emergency, and looking that over in the first weeks of this pandemic brought me some peace of mind. At the risk of sounding like a broken record, this is why I love tracking our spending- I really clearly know how much money we need to get through a month comfortably. Take that number and multiply it by 3, and make sure you have that amount in a savings account (NOT invested!). If you don’t usually track spending, this might be a good time to try it out! You can even build a simple excel spreadsheet.
I haven’t been going out to eat, driving, picking up coffee, or booking travel. What should I do with extra savings?
Make sure your emergency fund is topped up! OK, last time, sorry. If it is, ask yourself if you may need extra cash soon- are you confident in your job security or subject to seasonal changes? If you do, consider putting extra money in a high interest savings account (WealthSimple is offering 0.9%, and if you’re OK to lock in for a year, Scotia will give you 2.7% in a new account). If you don’t think you need access to the money, I would maximize your RRSP contribution- this will ensure you take advantage of the most tax savings possible. Remember you have a limit on how much you can contribute, which is calculated based on your previous year’s income. Another good reason to file your taxes! Once you’ve maximized your RRSP, consider contributing to an investment account held inside a TFSA- just note this also has a yearly maximum. Our last priority would be making a lump sum mortgage payment, since mortgage interest rates are low.
So that’s what we’re doing! How are you managing? xo
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