How should you adjust your budget when significant life changes happen? How can you lower your stress about finances? What can you do today to prepare for a more secure future? Jessica Moorhouse, money expert and financial literacy advocate, discusses some ways to budget during these uncertain times with Desjardins Group financial planner Angela Iermieri.
Jessica Moorhouse: I'm sure you've been getting a ton of questions about budgeting. We don't know how long this situation is going to last, and I think people are still looking for answers. How should people adjust their budget during these uncertain times and during big life changes? A lot of people are dealing with job loss or reduced hours and just trying to manage their money as best they can during this pandemic.
Angela Iermieri: Uncertain times call for different measures and I think now's a good time to set up a budget if you don't have one yet. A budget gives you a clear idea of your income and your expenses, basically what's coming in and what's going out. Making a budget is a lot simpler than most people think. There's not that much math involved, you don't need big Excel sheets. There are a lot of budgeting apps, and financial institutions offer tools to help you make a budget to get an overview of your situation.
For anyone who's never made a budget in their life, what does that look like? What are some key things that they should include so they have everything organized?
On one hand you have your income, which gives you an idea of what you can spend; on the other, you have your expenses. Start with your living expenses, like your groceries and your rent. Then list your other expenses, things that you don't need or that you can put on hold, like subscriptions. A budget tells you where your money is going. For example, think about if your TV subscriptions, cellphone plan and insurance coverage still meet your needs?
When someone's making a budget, would you suggest they have a list of expenses they might want to postpone, reduce or cut out completely if something happens?
Yes. With everything going on, we're seeing some of these expenses being eliminated. If you're working from home, you're spending less on transportation. Leisure and travel are other expenses people can save on. These are the things we've had to make do without in these uncertain times. They're nice to have but can be put aside, at least temporarily.
Let's talk about people who are still working. They're earning an income, but they don't feel like their financial situation is exactly stable. What can they do today to set themselves up so they don't have to worry too much about money if their hours are reduced or if they lose their job.
It can be hard to plan for unexpected expenses or unexpected situations. But that's what an emergency fund is for. You put money aside in an account for exactly that: an unexpected situation, such as a loss of income, a job loss, health issues that stop you from working. You don't touch the money in that account. And ideally it's invested in a high interest savings account, but still accessible at any time. Don't invest that money in the markets because they could drop during uncertain times and you could lose your money.
The last thing I want to talk about is something that's on everyone's mind. It's easy to say "start a budget," "save up an emergency fund," but people are experiencing a lot of emotions right now. Many people are worried, they're stressed out. How do you manage your emotions during this time while being practical and doing smart things with your money?
People are experiencing a lot of emotions and financial stress. It's very present in everybody's life, especially with the current global situation. There was a survey for Financial Planning Canada that found that 42% of Canadians said money is their biggest stress. But asking for help is the best thing to help you manage your financial stress. Financial planners and advisors are here to help. You can even get informed by taking online classes, tutorials and webinars. The information is out there. No one is alone in this. Like I said, a lot of people going through a tough time and financial stress is a big part of it. Just remember you're not alone in this. You can get help and talk about it, just that can help a lot.
For more on this subject, you can read:
These challenging times haven't just upended our daily routines--we've had to take a second look at our finances too. Has your budget taken a hit? Financial planner Angela Iermieri* will give you her best tips to help you take control of your budget.
A budget? Really? Yes, but only to make your life easier. It's the perfect time to evaluate your expenses and establish saving objectives.