The unfortunate truth of the reality we are all living with right now is that thousands of Alberta businesses have been shut down for more than two months now, leaving thousands more out of work. This has severely affected the incomes of many families. Even more difficult is the fact that it seems that a lot of those jobs may not ever come back.
It’s at times like these that the importance of an emergency fund is more obvious than ever. In addition to loss of income, there are many reasons as to why having a good amount of extra cash on hand can come in very handy. Situations like vehicle breakdowns, home repairs, a computer crashing, health problems, and even an unexpected trip to the vet all require more than the average person has left on their paycheque to pay for. An emergency fund gives you added financial control, and, most of all, peace of mind.
Setting up Your Emergency Fund
The Financial Consumer Agency of Canada has created a good resource on setting up your emergency fund, starting with opening a proper savings account. This account should be separate from the one you use for everyday transactions. This is not to be a transactional account, only one you regularly deposit into and (hopefully) rarely have to access. To that end, most savings accounts do not charge monthly transaction fees, but there is likely to be a limit as to how many withdrawals can be made and a cost to each one.
A good savings account should allow you to be able to earn interest, which this article says should be around 2% to be competitive. Experts say to aim to save from three to six months of your regular expenses, but you could get ambitious and go for three to six months of your total income. The best and most pain-free way to do this is to set up an automatic transfer from your chequings account at the same time every month so that you don’t even have to think about it. TheBalance.com suggests saving 20% of your income, with 10% to 15% going towards your retirement income, and the other 5% to 10% going to your emergency fund, paying down debt, and savings towards home upgrades, paying taxes, vacations, and other short-term financial goals.
Other ways to save include:
- Only using cash and only allowing yourself to withdraw a certain amount at a time
- Ordering out or eating at restaurants less often
- Putting loose change into a “piggy bank” of sorts
- Bringing lunches to work
- Making coffee instead of buying it
- Using public transit
- Taking advantage of discounts, coupons and sales
More Tips for Managing a Sudden Financial Downfall
The best thing to do when managing a sudden financial downfall is to try very hard not to accrue any more debt. This can turn what may have been a short-term problem into a long-term difficulty. Contact your bank and be transparent about your circumstances. There are a number of different ways that they may be able to help. Many are allowing customers to defer payments and are open to waiving fees. Some may even provide relief on certain credit products.
These are the responses Canada’s six largest banks have provided with regards to programs and advice they may be able to provide at this time.
The whole point of deferring payments is to help you avoid having to take out another loan or rack up high-interest credit card debt. With deferred payments, at least you know you will be facing larger than normal bills at a certain point in the future. It’s not ideal, but it will give you some time to plan. Financial advisers on staff will also be able to help you with a savings plan to ease the pressure of higher payments when that time comes, and once you are finished with your deferrals you can keep saving towards building a proper emergency fund.
Federal Assistance Program
The Canada Emergency Response Benefit (CERB) is available to those who have stopped working because of COVID-19. The CERB provides $500 a week for up to 16 weeks, and is meant for those who have not voluntarily left their job. See the frequently asked questions here.
Since COVID-19 was first diagnosed in Alberta, we have been putting together a number of resources to assist in understanding the insurance-related implications of the pandemic. Find the following articles to keep up to date.
- COVID-19 Travel Advice, Information, and Resources
- Ways COVID May Affect Your Insurance and Car Ownership
- Protect Yourself From COVID Scam Artists and Opportunists
- Commercial Insurance Questions During COVID
- Can I Access My Business Interruption Insurance During COVID?
- What is the Possibility of Business Pandemic Insurance?
Lane’s Insurance Brokers Work for Alberta
Although insurance is an often irritating expense, we like to think of it as an additional form of savings. The monthly premiums you pay work to create insurance pools of equity that you are able to access when you need. Our job is to find you the very best coverage at the lowest rates available. We work with Alberta’s top insurance providers, and are able to compare and contrast their policies to find the one most suitable for your needs. Contact us at our Calgary, Edmonton, Banff and greater Alberta offices for all of your insurance needs.