Are you worried about the impact the upcoming coronavirus-related recession will have on your finances? Not sure if you’ll be able to weather the storm? Our Chestermere accountant has put together a helpful list of tips that will help make your finances more recession-proof.
Very seldomly are we as acutely aware as we are right now about being in a recession, but COVID-19 is ushering in unprecedented circumstances on almost a daily basis. According to the latest economic forecast from the International Monetary Fund (IMF), the Canadian economy is predicted to contract 6.2 per cent this year. Meanwhile, more than 5.6 million Canadians have already applied for the federal government’s Canadian Emergency Response Benefit (CERB). We’re in for a world of economic disruption and hardship in 2020. With that in mind, here are three ways you can make your personal finances more recession-proof.
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1. Focus on paying down your debt
According to our CPA Chestermere financial expert, paying down your high-cost debt as soon as possible will provide your finances with a bit of breathing room. First up on the high-cost debt list are credit card balances, which usually have an extremely high interest rate. After paying down your credit card debt, shift your focus towards other high-cost debts such as car loans and mortgages. By aggressively paying down these debts, you’ll then have more capital to contribute to your savings.
2. Bolster your emergency savings
Now that you’ve paid off some of your high-cost debt, it’s time to focus on shoring up your emergency savings. Having an emergency fund that can initially cover at least one to two months of your normal living expenses will provide your personal finances with a buffer should you unexpectedly lose your job. Our CPA Chestermere financial expert recommends building up this initial emergency fund even while you’re paying down your high-cost credit card debt. Otherwise, if an emergency happens to hit and all your money is going towards paying off high-interest rate debt, then you’ll be forced to use things like credit cards again to cover your costs. Once your high-cost debts are eliminated, further bolster your emergency savings fund so you can cover three to six months worth of living expenses.
Unsure of everything that’s been unveiled by the Canadian government when it comes to their COVID-19 fiscal response for individuals and families? Check out our article on the topic below.
CANADA’S COVID-19 FISCAL RESPONSE FOR INDIVIDUALS
3. Tighten your belt and don’t overspend
Even if you haven’t lost your job recently, it’s always a good idea to go through all your expenses every month and find ways to cut your costs. By determining which expenses are discretionary and not needed for you to subsist, you can begin chipping away at things like nights out or restaurant meals that add up over time. Try to find one or two things a month that you can cut back on, and track your savings over time. Our Chestermere accountant also suggests spending no more than 30 per cent of your take-home pay on things that are deemed discretionary. One way you can achieve this is by creating and, more importantly, adhering to a monthly budget. This will help you make sure you aren’t overspending.
While recessions test our financial and mental fortitude, following these three tips from our Chestermere accountant will put you and your family in a better position to weather the current — and next — economic storm.
IAPC is here to help during COVID-19
If you’re concerned about the state of your personal finances or taxes in light of the ongoing pandemic, book a free consultation with one of our trusted Chartered Professional Accountants today and let us help guide you through this uncertain economic time.
