Life after the vaccine: managing your finances
Part three of a five-part series
By ATB Wealth 10 June 2021 6 min read
In one way or another, the pandemic has likely impacted your personal financial situation. You may be one of the fortunate Canadians that has been able to save money and pay off debt, or one of the less fortunate whose finances were negatively impacted. Whatever your situation, as we move toward a post-pandemic world, it is more important than ever to make smart decisions and be intentional with your finances. This starts with financial management; the process of ensuring your cash flow is adequate for achieving your financial and wealth goals.
It’s all about the numbers
In taking care of your physical health, it helps to monitor your numbers; your blood pressure, cholesterol or body mass index. The same is true for your financial health. Monitoring your numbers lets you know if you are on track or if you need to make changes to get back on track. Whether it’s your monthly cash flow (the inflow and outflow of cash) or your net worth (your total assets minus your total liabilities), understanding and managing these numbers is key to moving towards financial wellness.
Cash flow and budgeting
How will your income and expenses change as things move back to normal? Will your income level increase, decrease or stay the same as the world opens up? Will you be spending more or less?
We often refer to the 50/30/20 rule when discussing personal spending; with 50 per cent of your income going towards needs, 30 per cent of your income towards wants, and 20 per cent being applied to your financial goals. During the pandemic, you may have had to rebalance this formula with more going towards your necessities and less towards wants and financial goals. Alternatively, you may have been able to increase the amount that was applied to your financial goals and build your wealth.
ATB’s recent article, 'To spend or not to spend', highlighted this increase in household savings, noting that, in 2020, Canadians saved on average $5,574 versus $479 in 2019, with the average savings rate increasing from 1.3 per cent to 14.9 per cent of disposable income. As things begin to go back to normal, it’s important to move back towards balance, while taking care not to lose any gains that may have been made.
Creating a post-pandemic budget is a great opportunity for a reset. This exercise can provide an opportunity to reflect on your spending over the past year and what changes you might plan as you look forward.
As a result of having to spend more time at home, did you subscribe to extra streaming or subscription services? Has your online shopping increased? Has meal delivery been a common occurrence? Although we may have considered many of these things necessities during the pandemic, they become more of a luxury now that life is moving towards normal. Reevaluating these and other expenses is key to building a strong financial foundation.
Planning for, and being intentional about, what your life will look like can ensure you focus post-pandemic spending on the things you’ve missed the most rather than experiencing buyer’s regret after impulse spending.
As restaurants, casinos, concerts and sporting events become options again, there will be significant opportunities for spending. In fact, “revenge travel” is a phrase that has been coined specific to post-pandemic travellers planning for longer and more expensive vacations in “retaliation” to the stay at home orders. Although this may sound tempting, it’s still important to do your research, not just in relation to safety protocols but also your ability to budget for this type of travel. You could consider a more local, less vengeful vacation. Travelling closer to home is typically more economical and supports the provincial and Canadian tourism industries.
Generally speaking, having a solid budget is a crucial component for better financial health; working towards financial freedom as we also start to experience more freedom in our daily lives. Despite the negative connotations that can be associated with the process of budgeting, keep in mind that it isn’t intended to eliminate the things you want to have. Rather, it’s about understanding how your money comes and goes, and what changes you may want to make to achieve your most important financial goals. The ATB budget worksheet is a great interactive tool for summarizing both your income and expenses, and will help you take control of your financial future.
As you establish the foundation for your financial success, you’ll want to track your progress. Creating a net worth statement is essential. Your net worth is the difference between total assets and total liabilities. Assets are the things of value you own and liabilities are the debts you owe. Calculating your net worth on a regular basis will show you if you are moving in the right direction and allow you to see the progress you are making toward building your wealth.
As mentioned, Canadians on average were able to increase their savings in 2020 compared to 2019. If the pandemic was financially beneficial for you and you were able to either pay off debt or increase your savings, your net worth would have increased. Don’t let the world reopening erase that progress. Keeping those savings invested and your debt level down may be the jump start you need to build momentum for your future financial growth.
Financial management strategies
Regardless of whether the pandemic has had a positive or negative impact on your financial situation, there are simple strategies you can implement to make the achievement of your financial goals easier:
- Force yourself to save
A significant amount of discipline is required to save money for the future rather than spending it today. Having savings taken care of automatically takes away that need for self-control. A pre-authorized contribution (PAC) is a recurring automatic withdrawal that transfers a pre-specified amount of money from your bank account to the investment account of your choice. Establishing a monthly or bi-weekly PAC can move you towards your savings goals more quickly. You also have the flexibility to increase or decrease the amount as your circumstances change.
- Establish an emergency fund
For many, the pandemic has illustrated the importance of an emergency fund and how quickly unexpected events can impact our lives. Having an emergency fund ensures you do not have to access high-interest debt in the event of an emergency. It is recommended that you have access to an amount equal to at least three months worth of take-home pay. It should be maintained in a readily accessible form in a high-interest savings account, money market fund or other short-term liquid security paying a competitive rate of interest.
- Increase your income
Increasing your income is another option for improving your cash flow. If you’ve experienced a job loss or decreased hours and income as a result of the pandemic, additional or alternate sources of employment may become available as we move back to normal.
A more comprehensive list of financial management strategies can be found in the ATB Wealth Financial management fundamentals guide.
As the vaccine rollout continues, we can start to see the light at the end of the tunnel. While looking forward to going to the movies, spending time with family and friends, dining out, travelling and all the other experiences we’ve missed out on, it’s more important than ever to be intentional with our finances. Although it might be tempting to splurge on those things you’ve longed for, staying focused on the bigger picture and making smart financial decisions is the key to building wealth and financial independence.
You may also be interested in
Life after the vaccine: economic resiliency
The economy following the Flu of 1918 could give us an idea of what to expect.Read article
Life after the vaccine: stimulus and spending
What will reopening mean for things like spending, inflation and interest rates?Read article
Life after the vaccine: bond market recap
Bond market behaviours can help us relate to high-level economic predictions.Read article
Life after the vaccine: stock market recap
Reviewing stock market returns this past year and how future performance may look.Read article
ATB Wealth® (a registered trade name) consists of a range of financial services provided by ATB Financial and certain of its subsidiaries. ATB Investment Management Inc., and ATB Securities Inc. are individually licensed users of ATB Wealth. ATB Securities Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
The information contained herein has been compiled or arrived at from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness, and ATB Wealth (this includes all the above legal entities) does not accept any liability or responsibility whatsoever for any loss arising from any use of this document or its contents. This information is subject to change and ATB Wealth does not undertake to provide updated information should a change occur. This document may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions and conclusions contained in it be referred to without the prior consent of the appropriate legal entity using ATB Wealth. This document is being provided for information purposes only and is not intended to replace or serve as a substitute for professional advice, nor as an offer to sell or a solicitation of an offer to buy any investment. Professional legal and tax advice should always be obtained when dealing with legal and taxation issues as each individual’s situation is different.