As the economy opens back up, many people may be tempted to get out there and spend. And why not? You deserve some retail therapy and it's great for the economy.
However, this crisis caught many Canadians off guard. Those without emergency funds may have lost sleep worrying about paying bills or staying afloat.
An interesting study in the US a few years ago revealed that for every additional $10,000 a person earned in annual income, their level of happiness increased exponentially. But only until they hit $75,000. Then, they were not happier.
A newer Canadian study flipped that thinking on its head. The Canadian Payroll Association's findings showed it's not your level of income that necessarily reduces financial stress, but your fully padded financial cushion.
Let's get those cushions fully fluffed back up!
How Much Do You Need in an Emergency Account?
Most Certified Financial Planners recommend you have three to six months of your household income saved in an account that isn't super easy to access (i.e. not linked to your debit card) but also isn't inaccessible or invested in anything that could jeopardize it.
For example, a high interest rate savings account, a tax-free savings account or a money market mutual fund could be good places to start. Accumulating these amounts can feel like a daunting task when you're just starting out, but keep in mind that even starting with $25 a month towards your savings can make a big dent in the long run.
On the other hand, investing in the stock market or even a balanced mutual fund could see dips and temporary losses, possibly just when you need to access your money.
Cutting Underused Expenses
A few dollars spent daily or even monthly can really add up. Here's a super easy tip for spotting unnecessary spending. Go through three months of your bank and credit card statements (online or paper) and highlight the items or services you either didn't use, wouldn't miss, or don't even remember paying for. Then see if you can cancel, suspend or reduce those costs.
Pay Attention to Tax Refunds and Credits
The tax filing deadline has passed, but you can still scour for tax deductions and credits for next year. If you're unsure about what's available, reach out to a certified accountant or tax professional for help. If you haven't filed your taxes recently (or ever), you might be missing out on GST credits, the Canada Child Benefit, a refund or more.
It's OK to Start Small
No amount of income or savings is too small to ignore. The dollars add up fast when funding your emergency account. Also keep in mind that like a ship going through rough waters, you may have to cut back on a few of your wants. Once smooth sailing is achieved and you've topped up your financial coffers, you can enjoy again what you might have had to temporarily sacrifice to get there.
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