How do I manage my money in this unpredictable year? How much should I save for the unexpected? How do I plan for my next tax return? This year has turned our worlds upside-down, and importantly, showed us why we need to be proactive about our personal finances. Winston Sih, digital journalist, speaks with Angela Iermieri, financial planner at Desjardins Group, about how we can manage our money wisely in 2020.
Winston Sih: Hi everyone and welcome to FinTalk by Desjardins Group. I'm Winston Sih, a digital and broadcast journalist, and I'm joined today by Desjardins Group financial planner, Angela Iermieri, to speak to you about the changes 2020 may have caused to your financial situation and how you can maintain your financial wellness in spite of it all. Plus, how to plan for the unexpected and what to consider when looking at your finances for the rest of 2020. Angela, thanks for joining me!
Angela Iermieri: Thanks for having me, Winston.
Well, there's no doubt that 2020 has turned our worlds upside down in so many ways and I can confidently say that includes our personal finances. It's affected everybody from students to those starting a career to those with families of course. Some people experience job loss or reduced hours while also managing debt. So, Angela, what are the important things we need to keep in mind when managing our personal finances?
I think 2020 definitely showed us that we need to have control on our personal finances. The first thing is to evaluate your spending, make a budget, and plan your purchases within what you can afford. So you take the time to budget according to your actual income and your expenses so you can spend within your means and manage lifestyle expectations.
Secondly, you list your debts and start paying back those with higher interest rates. Most of the time it's credit cards more than student loans, because student loans the interest is lower and also government guaranteed. Student loans are eligible for non-refundable tax credits.
In the past year, we've made changes, changes to the ways we use cash - we use a lot less cash, more debit cards, so you could adjust your transaction plan with your financial institution to avoid getting charged for going over your allotted transactions. Or, even review your insurance coverage needs if you need your car less or maybe you don't need your car at all, so you just want to reassess your insurance policy.
It's a really good way that you've kind of laid it all out in a way that as a consumer, it's a great chance for you to hit that reset button to take a look at your overall financial health and see where you can save and where you can kind of cut back on some of that debt. You know, as we've talked about time and time again, this pandemic has been unprecedented and you know, there are many things that happen in life that also catch you off guard. Your roommate moves out, your car maybe breaks down, as we mentioned before, you maybe lose your job or suffer an illness - many people are reflecting on planning for the unexpected. So, where should we start?
One practical way to plan for a financial unexpected situation is to set up an emergency fund. So you set up a savings account that is dedicated to those unexpected situations, not your impulse purchases, and you save regularly or when you receive some extra money. So, you try to keep the equivalence of three months expenses in that account. Obviously more is better. But this will allow you to cover short term expenses while you get back on your feet.
Also, as you mentioned, in unexpected times, we have noticed also that many younger clients have inquired on insurance coverage. Some wanted to know what they were covered for - whether it be health or disability insurance, for example, whether it's through their group insurance or individual protection. And those with dependents and a family, they reassess and even increase their life insurance coverage. Protection needs are part of our financial wellness, to protect yourself and your loved ones, but often not prioritized when we have so much going on. So it's always recommended to assess your protection needs with an insurance agent when you're starting off in your financial life or when a major change occurs.
I really like that tangible tip of having three-months' worth of savings, because you really never know. As a freelancer myself, it's something I really need to plan more for, for these rainy days. I certainly had a wakeup call during COVID-19 and insurance is something I often don't think about as a freelancer so just some of the things that we need to keep in mind. You know, some people, although many are freelancers, some people have been more fortunate - they've kept their full-time jobs and had to adapt to working from home full time, some people even were able to take advance of CERB, the Canada Emergency Response Benefit, so their financial situations may not have been impacted as much as others. So what are some tips you can give to those people?
I would say we should start preparing for our 2020 tax return this spring because those who did benefit from the Canada Emergency Response Benefit have to know that it's a taxable income and no taxes were withdrawn before it was given so unlike when your taxes are withdrawn on your pay cheque. In this case it wasn't. So you need to plan, you may have to reimburse and owe some money on taxes. Same thing if you're right now benefiting from employment insurance, even though there's a little bit of taxes that is withheld, it may not be enough.
Secondly, if you work from home, you may be eligible if you're a salaried employee for the work from home workspace in the home tax deduction, so you may want to ask your employer and your accountant if you're eligible and keep the receipts for the expenses that incurred and you may get some money back. We don't know what lies ahead, but we know that the important part is to save a little for the future, things will get better, we will have future plans, we will be able to travel, to purchase large items and plan for future, so let's starting saving and investing for them right now.
Very good and I like that you said that life will get back to normal. A lot of full-time workers don't know that there might be a pathway to get some of those expenses reimbursed especially since so many of us are working from home. Angela, thanks so much for joining me. And as we continue to look at that road to recovery, some are considering how they should pivot their investment strategies. We'll be covering that in the next video with Angela in the next part of the series. Thanks so much for joining us and we'll see you next time.
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