Many countries are experiencing an economic downturn due to the Coronavirus and Canada is not an exception. The people are worried about the economic crisis, probably more than the health risk, that is going to hit the country soon. Probably it has started showing signs of an economic downturn.
Royal Bank of Canada has predicted that as an effect of COVID-19, though the economy will grow about 0.8% in the 1st quarter, it will face a decline of about 2.5% in the 2nd quarter and 0.8% in the 3rd quarter. However, the experts are predicting that there will be economic growth by the 4th quarter of 2020.
Now, the question is what will you do? Will you repay debts or build your emergency fund? These questions might be hovering around your mind in the present times. You may also worry about your investments like will you get a profitable return in the future?
What should you do during this time to manage your finances effectively?
Reduce your spending
You need to reduce your spending. Currently, the economy is going through an economic downturn. So, it’s better to be prepared.
Try to save as much as you can. It will help you if you face a job loss.
To save more, plan a suitable budget. First, save a certain amount and then, plan your necessary spending with the remaining amount.
If you already have a budget, this is the time to analyze it and modify it as per your unique needs. It is better to curtail your wants for the time being and save more. Just prioritize your needs. Motivate your children to deposit a portion of their allowance in their piggy bank. They will also learn to save.
Here are some tips to reduce spending:
· Cancel your subscriptions and memberships that you rarely use or might do without
· Instead of ordering food from outside, spend some family time cooking together
· Try some side gigs and earn some extra dollars
· Start blogging if you’ve always wanted to do it
· Don’t buy in bulk if you can’t consume within the due date
· Stay at home as much as possible and save on fuel cost
About your emergency fund
The experts say that you should try to save about 6 months of your lifestyle cost in your emergency fund; the more the better. Use Finally’s simulator to figure out how much money will you need based on your lifestyle.
So, while planning a budget, dedicate a good amount for savings and deposit it into the emergency fund. Keep it in an account that you can access fast when required.
But, do not use these funds unless it’s a real emergency. After you use it, try to replenish the funds as soon as possible.
About your investments
The Toronto Stock Exchange posted its biggest one-day loss since 1987, although it surged 400 points in early trading Tuesday.
As per Pavlov, a finance professor at Simon Fraser University, this is not a good time to sell your shares. If you don’t need the money right now, keep it as it is as the market will recover gradually and in time.
However, at first, have some liquid cash and emergency fund, then invest the surplus amount. Remember, it is critical to have liquid cash that you can access in case of an emergency.
About paying back debts
In this situation, if you are facing debt problems like payday loans and credit cards, you can seek payday loan debt assistance. It is better to get rid of annoying payday loans as fast as possible. Also, make your credit card payments at every billing cycle. Doing so, you can avoid paying any interest on credit card debt.
To decide whether to pay down debt or invest, you can calculate the pros and cons of both the options. If you see that you have to pay more interest on your debts, then paying back debt first is a good option. However, if investments are giving your better return, then undoubtedly, you should go for it.
But, in this time, it is better not to expect a huge profit in the near future, and you may have to face legal consequences if you don’t pay back your debt.
If you’re thinking whether to pay down debts or save, then, it’s better you devote somewhat equal attention to both. Especially if you don’t have much savings, it is advisable to have some because you need to be prepared for the difficult time.
However, continue making your debt payments and be current on your secured loans such as mortgage loan, as otherwise you may face a foreclosure.
If you are facing difficulty to make your debt payments due to a job cut or pay cut, contact your lender/creditor and explain your situation. They might offer an alternative debt payment plan which can suit your financial condition.
Use Finally’s Financial Simulator to create a Plan for your money
The right way to distribute your money really depends on your short and long-term financial goals. Some experts recommend that, if you have huge debts, you need to get rid of them first; otherwise, you’ll have to pay more on interest. But, if you don’t have any debts, then experts recommend this is the right time to build your emergency fund. The reality is that you are the only one that knows what is best for your unique situation. That’s why we developed Finally’s Financial Simulator, to help you understand how to properly distribute your money based on multiple, yet competing, goals. You will be able to choose multiple goals (pay debt, build an emergency fund, save for retirement, etc), prioritize these goals according to your personal needs, and learn how to distribute your money to reach each and all of your goals, simultaneously!
The need of the time is to take care of your physical and financial health. Don’t worry! Good times are just around the corner!
Author Bio: Catherine Burke is a financial writer for online payday loan consolidation. She provides information on successful cash loans and payday loan consolidation to help people get over a difficult patch. She lives in Kansas and has earned a frame in the matter of payday loans.