It’s hard to read the news these days and not see a headline about Coronavirus. Coronavirus isn’t just a health crisis, it’s a financial crisis – it isn’t the first and it won’t be the last. Before COVID-19, there was the 2008 financial crisis and before that there was the dot-com bubble.
If you’ve been financially impacted by COVID-19, there are steps you can take today to get your finances back on track in the future. The sooner you do that, the sooner you can focus on other financial goals, like saving towards your child’s RESP.
Here are three ways to get your finances back on track after a financial crisis.
Cutting Back Where Needed
A financial crisis may change the amount of household income you have to budget with, especially if your employment situation was impacted. If your income has taken a hit, you may want to think about making some adjustments to your budget to account for the drop.
The first area you may want to re-examine is your lifestyle. Mortgage or rent and transportation are the most costly household expenses for most Canadians. As such, look to those areas first for ways to save money.
You might consider downsizing to a more affordable place to live. Likewise, if you’re in a two vehicle household, you might consider selling one of your cars. Or you could go car-free completely.
If you’re not ready for major changes like these, you might focus on other areas to reduce spending, like cooking at home more instead of ordering takeout.
Whatever you end up doing, make sure your income is enough to cover your expenses on a monthly basis at a bare minimum.
Rebuild Your Emergency Savings
If you’ve been financially impacted, you may have to use some of your emergency fund during a financial crisis. If that’s the case, one of your top priorities should be to replenish your savings when the time is right.
The recent Coronavirus pandemic has reminded us about the importance of having a sizable emergency fund. To make sure you’re well-prepared, it’s a good idea to keep your spending to a minimum on anything non-essential until you have enough saved up to cover three to six months’ living expenses.
If you didn’t have an emergency fund to begin with, it’s time to make building one a priority. If Coronavirus has taught us anything, it’s that the economy can change in the blink of an eye.
Build or rebuild your emergency savings by automatically contributing a pre-determined amount of money from each paycheque to a high-interest savings account. That way, your money will be out of sight and out of mind.
Focusing on Paying Down Debt
If you’ve had to take on debt during a financial crisis to get by, it’s a good idea to figure out how you’ll pay it back as soon as possible. It shouldn’t mean setting aside your plans of rebuilding your emergency fund, but you certainly want to aim to pay more than the minimum, so you’ll reach debt freedom sooner.
If you relied on high interest debt, like credit cards, you may want to look at refinancing your mortgage and rolling any debt that you have into your mortgage, again, at a much lower interest rate.
Whether you choose to refinance your mortgage or not, set yourself the goal of when you want to have your debts fully repaid. Then focus on paying off one debt at a time, either the debt with the highest interest rate or lowest balance. Be sure to at least make the minimum payment on all your debts, so that your credit remains in good standing.