It’s been a little over a year since the world was plunged into an economic crisis brought about by the COVID-19 pandemic, and we’re continuing to see its effects daily. The World Health Organization issued a statement warning that tens of millions of people have been put at risk of falling into extreme poverty, with millions of enterprises facing existential threats and half of the world’s workforce losing their livelihoods.
The struggle to maintain healthy finances despite the changes brought about by the pandemic can’t be discounted, and it’s easy to find yourself making irresponsible decisions. However, if you want to see the end of the pandemic with your finances intact, here are some of the money mistakes you need to avoid:
Choosing the wrong debts to pay off
In Canada, the government has provided $2,000 every 4 weeks for up to 28 weeks to eligible workers whose employment was negatively impacted by the pandemic, through the Canada Emergency Response Benefit (CERB). Similar programs have been seen across the world, as governments have provided various economic relief packages to help both individuals and businesses survive the pandemic.
While it’s no substitute for a steady income, the extra money has helped many improve their financial situation. Unfortunately, one common mistake people make when coming into extra money is paying off the wrong debts. Kelly Welch of Girard Advisory Services advises paying off debts with higher interest rates first. “By prioritizing payments to debts with higher interest rates, you can reduce the impact of interest down the road,” she told Business Insider.
Pausing retirement savings or worse — dipping into them
In the face of a major economic downturn, it’s easy to find yourself worrying about your investments. There may be a temptation to pause your contributions or pull from your existing savings and investments in order to help yourself out short-term, but this isn’t always the best course of action.
In fact, Charlotte Geletka of Silver Penny Financial explains that “When the stock market is down is the best time to invest in your 401(k)… because elective salary deferrals can stretch further when stock prices drop.” Moreover, withdrawing from retirement savings accounts like your Registered Retirement Savings Plan (RRSP) not only takes you a few steps further from your goals, but it also entails some pretty hefty taxes. Withdrawing your RRSP early means that the amount you get is added to your gross income, which could potentially put you in a higher tax bracket. Instead, it’s best to re-evaluate your spending and create a robust budget — and stick to it.
Living — and spending — as normal
Nobody can fault you for wanting to splurge on yourself every now and again — we all need an escape from the stressors of the pandemic! However, it’s important to stay realistic and practical, especially in these trying times. Keep track of your spending religiously and make sure you set aside a portion of your income for your savings and investments. More importantly, don’t forget to ask for help.
Meredith Moore from Artisan Financial Strategies LLC emphasizes the importance of talking to a financial planning professional during an economic downturn. In her article on Forbes, she explains that financial planning professionals can help you not only with the technical aspects of your financial security, but also with shifting your psychological perspective. That’s because they serve as an objective and experienced partner to help keep you on track.
The past few months have been challenging, and many have surely struggled to regain their footing in such trying times. But with a few months’ worth of learning behind us, we can surely push through, one day at a time.
For the latest information on the pandemic, check out our COVID-19 news and updates.