Financial Health in 2022
Nobody could have predicted that January 2022 would bring with it the Omicron variant and a third year of a global pandemic. For many, these last few years have been characterized by the ongoing stress of employment uncertainty and financial instability.
Sylvia Fleming, Certified Financial Planner and Elder Planning Counselor in Kelowna, BC, believes the secret to financial health and peace of mind in 2022 is to plan for the unexpected and to make wise, more educated decisions regarding spending, saving, and investing.
Fleming says an emergency fund equivalent to three months salary is essential to creating resilience during unforeseen circumstances. Fleming defines an emergency as losing your job or becoming sick, injured, or facing some other challenge that prevents you from working. It is enables you to keep a roof over your head, food in the cupboard and pay other essential bills until you can get back to work or find another job. Fleming stresses, “it is not to be used for fixing a flat tire, repairing the washing machine, or buying someone an expensive gift. Those are not emergencies. Those are things you budget and save for.”
Stockpiling three months worth of salary takes time. Fleming advises that an emergency fund should be treated as a monthly bill. Figure out how much you can contribute every month and continue to pay it, even after you have reached your goal. The additional savings can be invested or ear-marked for big ticket items, such as a car, that will eventually need to be replaced.
Fleming says that, equally important, is recognizing “the why” behind your financial decisions. During the pandemic, Statistics Canada reports credit card debt declined by 18.3 per cent between Feb. 2020 and Jan 2021 due in large part to consumers in lockdown having less opportunity to spend. During that same period, mortgage debt rose by $99.6 billion as housing prices across the country continued to rise. Those working remotely felt the need for more space while others believed housing to be a good investment.
In her experience, Fleming believes people tend to spend, and invest, on a whim. “Most people don’t understand tax brackets. They invest in RRSPs without considering whether it makes sense for their personal circumstances. Why are they buying a house – is it to use as a commodity or a personal asset? Does it make more sense to rent and avoid the added expense of repairs and maintenance?”
Accumulating wealth is about effective decision-making:
Understand Your Spending. Keep your receipts and use them to determine how much are you spending on essentials like rent, groceries, and transportation versus non-essentials like specialty coffees, restaurant meals, gifts and clothes. Use this knowledge to lower your expenses and increase your savings.
Budget for your Priorities. Whether it is travel, golf or getting your nails done, determine how much you can spend per year on the things that make you happy. Having money for the important things means spending less on budget items that are not a priority.
Ponder Your Purchases. You are walking through the mall; you see something you want to buy. Walk away. Do you need it? Did you budget for it? Is it good value for the money? If the answer to all the questions is yes, return to the store and make the purchase. Fleming says people who ponder before they purchase, typically decide not to buy.
Live Within Your Means. You have identified health and fitness as a priority. You are purchasing protein powder, vitamin supplements, and your gym membership is $300 per month. “If you are making minimum wage, you cannot afford your lifestyle,” Fleming says. “Get a second job or find a less expensive way of maintaining health and fitness.”
Don’t Spend Money You Don’t Have. Credit cards are easy to use, handy to have but are not to be mistaken for a loan. Monitor your spending and know how much you owe and how you are going to pay it off before your monthly credit card statement arrives. Paying off your credit card balance in full each month enables you to accumulate points and foster a good credit card rating but with an annual interest rate of between 19.99 and 23 per cent, unpaid credit cards can quickly lead to spiraling debt.
Take Responsibility for Bad Decisions. We all overspend or make bad financial decisions from time to time. “Don’t beat yourself up but don’t put your head in the sand,” Fleming says. “Make a plan to pay down the debt as quickly as possible but remember, it’s not an emergency.” Fleming likens your bank account to the gas tank in your car. “Whatever money you use to pay down the debt, you have to refill the tank.”
And finally, when you have money to invest, talk to a certified financial planner.
Article written by Sharon Hughes-Geekie. Sharon is a Kelowna-based writer, owner of JumpStart Communications and Business Development and vice-chair of the Okanagan Branch of Women in Leadership. She is co-author of two books: Mama’s Gotta Work and Fear Less through Golden Brick Road Publishing.
Connect with Sharon:
LinkedIn: Sharon Hughes-Geekie