Aug 30: BEST FROM THE BLOGOSPHEREAugust 30, 2021
How to hang on to any “pandemic cash” that may be pilling up
While some of us have had to struggle to make ends meet during the pandemic, others have – somewhat ironically – seen their personal savings shoot to new heights.
A report by CTV News looks at how some of us may have to adjust our budgets as COVID-19 restrictions begin to taper off.
The article notes that by the second quarter of 2021, Canada’s savings rate rocketed up to 13.1 per cent, more than double the previous year’s savings rate.
“Even Canadians’ credit card debts have been dropping, with rates hitting a six-year-low in June due to reduced spending,” the article informs us, citing data from Equifax.
You read that right. Credit card debt is dropping.
“Across the board in all age groups, we’re starting to see people pay more than they actually spend on a credit card, which is a real positive behaviour change in terms of consumers,” Rebecca Oakes of Equifax tells The Canadian Press in the article.
That’s great, but when things return to “normal,” will we still be saving and paying off debt?
CTV suggests a few things to do with any extra cash you may have accumulated as normality begins – and there are more tempting things to spend your money on than during the locked-down pandemic.
Finance expert David Lester is quoted in the article as suggesting one destination for extra bucks would be an emergency fund, which should be enough to cover “six to nine months of expenses.”
Next, Lester tells CTV that your retirement piggy bank should not be neglected in the rush to spend, spend, spend.
“It could go into your tax-free savings account (TFSA) or registered retirement savings plan (RRSP), but we should just get used to saving 10 to 15 per cent” for retirement, he states.
If you spend with a credit card, Lester says it’s important to pay off the card each month, and to avoid letting a credit balance begin to grow.
He recommends that you pay off credit card balances first, as soon as you get paid, “and then going to zero (balance).”
If you are setting a budget for the world after the pandemic, be realistic, adds Lester.
There were a lot of things we couldn’t do – many of them expensive – that we may not want to spend as much on post pandemic, he explains. We lived without them for a long period of time, Lester tells CTV.
“Maybe it was travel, maybe it was movies, maybe it was having coffee at home, or not buying expensive clothing,” he says in the article. “So see what you really don’t miss and go back through that budget line-by-line and see what you don’t have to add back on now that things are opening up. We don’t want to go back to that bad spending that we were doing before.”
Our late Uncle Joe frequently would pull us aside and recommend the 10 per cent rule – bank 10 per cent of your money off the top, and live on the remaining 90 per cent. “You will never have any problems,” he said. It’s very sensible advice.
Pay yourself first, the old adage goes. And if you are putting away that cash in a retirement account, you are paying your future self first. You’ll be making life easier down the road, because you’ll be entering retirement with money in the bank and at the ready. A great way to pay your future self first is to set up an account with the Saskatchewan Pension Plan. They’ll invest your savings, at a low cost and a historically strong rate of return, and at the appropriate time, will help you convert those savings into retirement income. After all, they’ve been delivering retirement security for an impressive 35 years!
Join the Wealthcare Revolution – follow SPP on Facebook!
Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.