Sticking To Your Financial Goals During The Pandemic

My wife and I had big plans for 2020. I had recently quit my day job to pursue my financial planning and freelance writing career full-time. We were going to travel the world, with trips booked to Maui, Italy, the U.K., and Victoria. We also had financial goals – specifically to max out our RRSPs, top-up our TFSAs, and continue making the maximum contributions to our kids’ RESPs. Then the pandemic hit.

Covid-19 forced us all to re-think our plans for this year. Those who’ve been affected most by the pandemic have lost jobs, closed businesses, applied for government benefits, payment deferrals, and debt relief.

We’ve been fortunate in that I work from home and have continued to earn a stable income. I also received a large cash payout when I took the commuted value of my pension earlier this year.

So, while the first half of the year has gone anything but according to plan, we’ve been able to roll with it and stick to our financial goals. Here’s how:

Open multiple savings accounts

Juggling multiple financial priorities can be difficult, especially when each goal requires a different amount and a different timeline. And if your finances were affected by the pandemic then you want to make sure you carefully manage your spending and savings so you can meet both your short-term and long-term goals.

One way to manage multiple goals is to open a few different savings accounts, name them, and funnel money into each account so you know your obligations are covered. On Oaken Financial’s blog, my friend Barry Choi nicely explained how having multiple savings accounts has kept his finances on track.

By having multiple saving accounts, you can:

  1. Manage joint expenses with your spouse
  2. Still pursue your saving goals in the middle of this uncertainty
  3. Get the most out of your accounts
  4. Modify things as needed until things get back to normal.

With multiple savings accounts – especially free ones – it’s easy to keep tabs on all of those irregular or one-time expenses that come up every year. For example, we pay our home and auto insurance annually, and so I know I need to have around $1,200 in the “insurance” account every May, and another $1,800 or so in the account by August.

Most people have a main chequing account and then perhaps one savings account for emergencies. The problem with this approach is that unless you have a really good handle on your spending, including when those irregular expenses come up, it’s easy to miss something and end up going into overdraft or into credit card debt to cover the expenses you forgot about.

Now imagine the satisfaction when you set up and fund multiple accounts to cover your vacation, insurance, emergency fund, property taxes, and Christmas presents (for example). A quick transfer and your expenses are covered.

Have an emergency fund to protect your future

Speaking of emergency funds, now is a good time to talk about the importance of having one to protect against future risks, such as a job loss or severe reduction in hours. One-third of Canadians live paycheque-to-paycheque, according to a CPA Canada study, and don’t have funds available to cover an unexpected financial obligation.

Murphy’s law states that whatever can go wrong will go wrong, and that means even in the face of a global pandemic with unprecedented job loss and economic turmoil, there’s still a chance your car will break down, your hot water tank will need repair, or a pet will get sick or injured. Life happens.

Melonie Dixon, Vice President, Deposits, Oaken Financial says,

“The economic impact of the COVID-19 pandemic underscores the importance of having an emergency fund available to help deal with unforeseen situations. Should you face an unexpected expense or a disruption in income as so many are currently dealing with, an emergency fund can help get you through a difficult stretch.”

We recently noticed a line of discolouration on the upstairs ceiling and discovered that some shingles and capping had blown off the roof or had become damaged during a wind and rain storm (welcome to life in Lethbridge).

Wind or hail triggers an automatic $1,500 deductible on our home insurance policy but the quote for repair came in just under $1,000. It didn’t make sense to make an insurance claim and so we paid out of pocket for the roof repairs. That’s a textbook example of an unexpected financial obligation and something homeowners should be prepared for by having some emergency savings set aside.

Putting the expense on a credit card that you can’t pay in full should be a last resort. We’ve built up our emergency savings over the years and doubled down on it this year knowing I didn’t have the steady income from a day job coming in.

Our emergency savings is held at a high interest savings account at an online bank, which tend to pay much higher interest rates than the big banks. Oaken Financial, for example, has one of the highest savings account rates in Canada.

Having the savings in place gave us comfort going into 2020 as a full-time entrepreneur, and that savings made us feel even more at ease with our financial situation as the coronavirus crisis played out.

Rebuilding your savings

Of course, if you’re forced to dip into your emergency funds to get through a job loss or pay an unexpected bill it’s important to rebuild your savings and prepare for the next event.

Ms. Dixon agrees, saying with the degree of disruption many are facing right now, the priority at this time must be on protecting your family and staying healthy.

“But once we get through this crisis – and we will – rebuilding your emergency fund should be a top priority. As our recent experience shows, it’s impossible to know when the next emergency might come our way and having a reserve fund is one of the best things you can do to help safeguard your family,” said Ms. Dixon.

I’ve found one of the best ways to rebuild our savings is to take a closer look at our monthly expenses and find areas to trim costs.

Our spending habits have certainly changed, with most of us sheltering in place since the pandemic hit. The biggest change has been saving on transportation costs. One of our two vehicles is parked, and we were able to get some insurance savings on the reduced mileage. We’ve also saved on fuel – I’ve filled up the tank once in three months.

Here are some other ideas to save on your monthly bills, including reviewing your phone and cable packages. It’s not uncommon to be able to negotiate a better deal on these items. Just make sure to pass the savings along to yourself by topping up your emergency fund.

Looking for a better place to save? Please visit oaken.com to learn more about Oaken’s GICs and saving accounts.

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5 Comments

  1. JR on July 7, 2020 at 5:59 am

    I take a slightly different approach to my budgeting. Years ago, I did two spending plans (or budgets): one for my regular or predictable monthly expenses/(e.g., groceries, utilities, gasoline, etc.) and another for my predictable but irregular (annual, semi-annual, or quarterly) expenses (e.g., insurance, house taxes, TFSA contributions, dental, etc). I divided the irregular expenses by 12 and the combined total was kept in my chequing account each month with a small cushion (1-5%, depending on my financial circumstances). To that total, I added a sum of money to be funnelled directly into my high interest “emergency fund“. I update my spending plan every year by reviewing the previous year’s spending and adding a small cushion for inflation or tax increases.

    My “emergency fund” was approximately divided into three categories: true emergencies, vehicle replacement, and dream vacation. On a spreadsheet, or on paper in the old days, I allocated a specific amount to each of these “emergency” categories once or twice a year. In the lean years, if we inconveniently needed to replace a vehicle and could only afford an old jalopy, then that is what we drove. It sometimes took us many years to save up for a dream vacation, so we had to get creative. Some years, we house swapped with a relative in another part of the country, and other years we had a staycation, where we made day trips within the province and took picnics.

    I managed to retire at age 58, after living most of our lives on one very average salary, and I can honestly say that we don’t want for anything now. We can now afford a new vehicle whenever we need one, and we have an annual “dream vacation”. We now actually have enough money invested that a small portion gets reinvested annually and we never spend the principal (so that, if one of us dies unexpectedly and the other gets OAS clawed back and our CPP reduced, we don’t have to substantially reduce our lifestyle).

    During our entire working lives, we had two salaries for only ten years, so we had to be creative and frugal. We have always lived in a modest home and driven modest vehicles so that we could occasionally splurge on things that were more important to us: dream vacations, the odd restaurant meal, a “no questions asked” spending account for each of us. When unexpected financial bonuses came our way, we took a bit out for splurge spending and invested the rest. Yes, it took sacrifice along the way, but that just made us stronger in the end. Yes, we have been very lucky. . . no major catastrophes like an unexpected disability or death, and we realize that this is what it takes: a lot of planning and a little bit of luck.

  2. Rob C on July 7, 2020 at 7:09 am

    Named purpose-specific savings accounts have given me a better handle on our saving and spending. Having one chequing, one savings, the latter holding emergency fund + car replacement savings (until COVID-19 I commuted 2+hrs a day) + vacation fund, was stressful.
    Being able to self-serve to make and adjust your savings plans as needed is key. One of our banks makes this easy; the other, not.

  3. Maria @ Handful of Thoughts on July 7, 2020 at 5:29 pm

    Multiple savings accounts is a great idea. With some many great no fee options you can take advantage of the best rates.

    Managing a few extra online savings accounts is much easier than trying to figure everything out when your money is all lumped into one account.

  4. Winne on July 7, 2020 at 8:27 pm

    I have a different approach. I keep a chequing account for all expenses (monthly, quarterly, annual payments). Over time, with deposits into the account, it increases. When it gets to a certain threshold, I funnel funds into RESP, RRSP, TFSA, and other trading accounts where I can manage my investments.

    I am a single parent so money is tight. I was saving to take the kids to Hawaii but the pandemic hit so I’m investing the money. I am also Chinese so any travel would have to be to “safe” areas as the backlash towards Chinese people has me quite concerned. How would I defend my children and I?

    I have only purchased used vehicles. I am currently driving my second car and probably my last car since it is a workhorse. We stopped dining out since 2018 (after my separation). That was a huge savings there. I saved money when the pandemic hit in March. I called my insurance broker and got a refund since I am now working from home indefinitely. I also switched my cellular plan to talk and text only since I have “data” (WiFi) at home. I also switched my internet provider because they had faster connections up and down and it was cheaper. I always assess before contracts come due for any savings and speed/connection.

  5. Kent on July 15, 2020 at 1:49 pm

    If it’s finances, there is going to be stress.
    The trick is to manage both well.
    I divide my total onetime annual expenses by 12 to arrive at my monthly savings amount.
    Every month I contribute this amount to an EQ 2% savings account. At the end of 12 months I have accumulated enough to pay the yearly expenses plus interest on the principal.
    Occasionally I will put an extra amount into the savings account for occasional surprise expenses.
    At other times I will invest any extra amounts into no fee trading accounts ( conservative ) to pay inevitable surprise expenses and to gain interest in the principal.
    I find this strategy a simple variation on what others have have described in comments.

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