Since the start of the COVID-19 crisis, many Canadians have found their lives flipped upside down. Whether it’s a loss of income or routine, adjusting to new circumstances can be difficult.
According to a recent survey conducted by Statistics Canada, consumers’ initial response to the pandemic lead to a 38% increase in grocery sales compared to the average sales in 2019. The surge represents 16% higher revenues than those reported in the week leading up to the December holidays, the busiest time for consumers.
Although these numbers seem to suggest a nation-wide spending spree, it may be the opposite. As a majority of Canadians are staying inside, overall spending may be on the decline. From cancelled travel plans to recreational fees and entertainment expenses, consumers may be in a position to adjust their budgets.
A study by Statistics Canada found that while just under 30% of Canadians reported the pandemic as having a moderate or major impact on their ability to meet their financial obligations, nearly 50% reported minor or no impact at all.
For those lucky enough to have continued employment, now is the time to reflect on your financial habits, as the importance of a rainy-day fund has become more evident than ever.
Saving unused discretionary budgets can help you better prepare for future financial emergencies.
- Building an Emergency Fund
- How to Start Saving
- Savings Options
- Finding Additional Financial Resources
Building an Emergency Fund
The Financial Consumer Agency of Canada (FCAC) recommends that you save the equivalent of three to six months’ worth of expenses in your emergency fund. That way, you’ll be able to cover your financial obligations for that period. If you can, try and save three to six months’ worth of income. If you are able, you’ll have enough money to cover essential costs with the benefit of some breathing room.
According to findings from the FCAC’s 2019 Canadian Financial Capability Survey, two-thirds of Canadians have an emergency fund with sufficient funds to cover three months’ worth of expenses.
The basic amount you should save in your rainy-day fund depends on unique factors like your income and your fixed, variable, and discretionary expenses.
- Income: The total earnings you take home through work, investments, interest or other amounts of money you receive on a recurring basis.
- Fixed expenses: These are expenses that occur monthly and cost roughly the same amount each time, like rent or mortgage payments.
- Variable expenses: These are costs that vary each month like food and transportation.
- Irregular expenses: These bills occur less frequently and are sometimes the reason for a rainy-day fund like emergency vet bills, home maintenance or car repairs.
- Discretionary expenses: These costs are not essential but necessary to include in the monthly budget, like hobbies and entertainment.
Remember to include any amounts owing, like credit card debt or student loan payments. In the event of an emergency, you’ll want to ensure you can cover all your expenses. The FCAC has an expense worksheet that can help sort these monthly costs and another tool to help you build your budget.
Knowing how much you spend each month can help you reduce unnecessary spending and plan for financial emergencies.
How to Start Saving
When it comes to saving, you don’t need to go big or go home. You can start to save with a handful of coins or a lump-sum deposit. But you need to start somewhere. Look for areas where you can save and bank the budget.
For the price of a daily take-out coffee, you could be saving roughly $730 per year.
Although these figures won’t show interest earned or any tax implications, you could save over $1,000 a year by budgeting $20 a week into your emergency fund.
Emergency Fund Savings
|Savings per Week||Savings in a Year|
Due to the pandemic, many Canadians are finding themselves at home most of the time. That means typical transit costs, office parking fees, take-out coffees, haircuts, movie tickets, hobbies, travel, and extracurricular activities, are not eating into the household budget. If you were to allocate those unused budgets toward your emergency fund, you could potentially make a lump-sum deposit of a few hundred dollars.
Carefully selecting where to deposit your savings can be beneficial. Some products can boost your rainy-day fund and earn more interest than others. Most importantly, choosing the right savings option can ensure you have access to your money when you need it the most.
The FCAC reminds consumers that setting up the right type of account to build your rainy-day fund is very important. The account needs to be easily accessible in the event of a financial emergency.
Tips for selecting an emergency fund account:
- Open a separate account specifically for your rainy-day fund.
- The account should have low or no fees.
- Your funds should not be locked in or incur penalties if you need to withdraw your money.
- You should earn interest on your savings.
Here are a few options you may consider.
Personal Savings Account
Savings accounts are a great place to safeguard your money. Unlike chequing accounts, which are used for frequent withdrawals, savings accounts are intended as a place to store funds.
Generally, personal savings accounts have low or no fees. They have few restrictions and offer excellent accessibility. Although these types of accounts typically have lower interest rates, sometimes as low as 0.05%, you may be able to find a great offer.
For example, the Tangerine Savings Account is offering new customers a 2.80% interest rate for the first five months. After that, earn 0.25% interest compounded daily. No minimum balance is required, and there are no monthly fees. This special offer applies to accounts opened between April 1, 2020, and July 30, 2020.
High-Interest Savings Account
High-interest savings accounts (HISA) are considered a low-risk option for storing assets, much like a personal savings account. But they tend to offer higher interest rates. Some restrictions may include minimum balance requirements or account fees. However, the following two HISAs offer a 2.00% interest rate, which is generally the best in the market, with no monthly fees or transaction limits. Plus, access your money as you like without incurring penalties.
|Rate||High-interest Savings Account|
|2.00%||EQ Bank Savings Plus Account|
|2.00%||Oaken Savings Account|
A Guaranteed Investment Certificate (GIC) is not an ideal place to store your full emergency fund as your money is generally locked in for a select timeframe. However, you may consider a cashable GIC so you can withdraw your money before the end of the term without penalty. Another option would be a short-term GIC, which typically offer terms of less than a year. You may be able to invest a portion of your savings and earn interest on your investment, without tying up your emergency reserve.
Finding Additional Financial Resources
Cutting costs and making mindful money decisions can help put money back in your wallet. However, you may be overlooking some additional financial resources.
If you are expecting a tax refund, filing your 2019 tax return can help you access some additional funds.
Many auto insurance companies are providing discounts to drivers who are using their vehicles less during the pandemic. Our friends at Rates.ca have a reduced premium calculator to help you estimate your COVID-19 rebate. While relief measures vary, the savings you receive could go straight to the bank.
Benefit and Credits
Many provinces are providing support for families to assist with educational resources since the schools have been closed. For example, families in Ontario are eligible for a one-time payment of $200 per child aged 0-12. Parents who have children with special needs aged 0-21 may be eligible for a payment of $250.
Additionally, families who are entitled to receive the Canada Child Benefit (CCB) may see a one-time increase of up to $300 extra per child as part of their regular May 2020 payment. Families are encouraged to file their 2019 taxes before the extended deadline of June 1, 2020, to ensure they receive this increase.