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Posted by Laurier Richard, Licensed Insolvency Trustee, April 20 2021
Savings strategies
Personal Budget: 5 Tips to Withstand the Economic Recovery

Personal-budget

Post-COVID? We are not there yet, but with the ramp-up of vaccinations, we can see some light at the end of the tunnel. So, the question becomes: how can we prepare ourselves financially for the long-awaited return to normalcy? Making a post-COVID personal budget will be a necessity. What is in store for us? As the economic recovery unfolds, it will be boosted by a huge pent-up demand resulting from more than one year of privation. A period of overspending is to be expected. From vacations to weddings, the post-COVID era will definitely not be characterized by as keen a focus on savings.

This being said, financial lessons have been learned from the COVID-19 crisis. Do you really need to hastily go back to your pre-pandemic consumption habits? The right strategy will consist in striking a new balance.

Below are 5 tips to consider before making your post-COVID budget.

1) Rebalance your personal budget

Once the economy reopens, additional expenses will inevitably be in order and even welcomed. To sustain the shock, you need to think over your personal budget. Plan for a transition period where you will go out more often than usual. The return of sporting activities will also weigh on the household budget. For those who will be returning to the office after a year of working from home, transportation costs will also go up. When you plan your personal budget, think about how your life was before COVID: Which expenses will come back, and which ones should best be left in the past? Now is the time to sort things through.

2) Revisit your wants and wishes

Making a personal budget is easier said than done. In most cases, it takes a bit of soul-searching. Is it wrong to believe that we need a vacation or a new iPhone? Not necessarily. To come up with a sound budget with the right perspective, you must know what you really want and make good to your inclinations and your passions as best you can.
Problems arise when you find it difficult to prioritize your interests and no longer live within your means. Do you have a tendency to want it all right now? When you are ready to spend on enjoyment, budget these purchases from one month to the next, from season to season. Prioritize things that give you a more lasting sense of satisfaction and have a positive impact in your life.

3) Don’t forget your contingency fund

If the pandemic has taught us something about money, it is that the unexpected is inevitable and we’d better be prepared for it. The 2020 BDO Affordability Index survey revealed that a majority of Canadians (51%) believe that having a contingency fund is more important than ever. Are you adequately covered for the short term? If not, try to put aside enough to pay three months of basic living expenses and make sure you keep it in cash in a separate bank account (not in your RRSP!). In the event of a prolonged absence from work, are your disability insurance benefits sufficient to cover your obligations?

4) Reduce your debts

A sound budget requires a coordinated approach. Besides building up your contingency fund, you must identify debt reduction strategies. Why? By lowering your financial commitments, you will avoid reaching your credit limit, and thus gain some flexibility should you ever find yourself in a bind. First of all, you must deal with your high-interest debt like credit card balances. A contingency fund coupled with a lower-interest credit margin can provide an excellent buffer in the event of an emergency.

According to the BDO Affordability Index survey, debt has become problematic for almost one in four Canadians (23%) during the pandemic. If this is your case, you may consult a Licensed Insolvency Trustee, who will help you understand the various debt management strategies at your disposal, such as consolidation loans, consumer proposals, and even bankruptcy.

5) Set out your mid- and long-term financial goals

You should use the final months of lockdown as an opportunity to define your mid- and long-term objectives. The silver lining to lockdowns — because there is one — is that it gives you a break from excess consumption, from the so-called “fear of missing out” that can generate feelings of inadequacy and even lead some to adopt a lifestyle they cannot afford. If you put social pressure aside, what would you like to achieve? What impact does this have on the goals of your retirement plan?

To work properly, a personal budget needs a direction. When clear goals are mapped out, it becomes easier to adopt a more selective approach to how you spend your money.

It’s time to do your homework!

A good budget app can help you get started. However, remember that financial wellness is more than just numbers. The spending plan set out in your personal budget is only the tip of the iceberg. You must understand what is truly driving your consumption habits. To get a handle on them requires willpower, patience and, above all, self-awareness.

Are you ready to get a grip on your financial situation? Click on the link below to register for a free webinar (available in French only) on the impact of Covid-19 on your personal finances that will be aired next May 12 at 12:00 noon.

The Impact of Covid-19 on Your Personal Finances Sign up to the webinar Available in French only

A law graduate of Université Laval, Laurier Richard has been a member of the Quebec Bar since 1995. After spending 5 years in private practice, he obtained his insolvency trustee license in 2004. Laurier joined BDO Canada Limited in February 2018 as Vice-President and Senior Manager of Insolvency Operations for the greater Quebec City area. Working with both businesses and consumers, he is recognized for his professionalism, his expert advice and his listening skills. A trainer recognized by the Quebec Bar and the Quebec Chamber of Judicial Officers, and a guest lecturer at Université Laval and Université du Québec à Trois-Rivières, Laurier loves talking about his profession and demystifying the aspects related to personal finances.
Laurier Richard, Licensed Insolvency Trustee