If you weren’t managing your money well before the COVID-19 crisis, you might be now given the prolonged period of financial uncertainty we’re all facing.
Here are four pandemic financial habits that are probably worth keeping after the worst of it has passed.
Paying closer attention to your banking and credit card transactions
You’ve probably noticed some changes to what’s flowing through your accounts. You might be fascinated by how much you’re saving while laying low during quarantine, or you may be monitoring the timing of money coming in so you can meet your basic financial obligations. After the crisis, lean in to your new habit, and review your account transactions at least twice per week. Studies show this activity helps you stay on track with your spending and can protect you from fraud. Unfortunately, fraudulent activity increases dramatically any time money is flowing from the government to individuals and businesses (EI, CERB, wage subsidies and tax refunds).
A keenness to invest money now for the long-term
A slump in the investment market has investors (and potential ones, too) eager to get serious about socking away money for the long term; lower investment prices means greater value. Investing wisely is a healthy habit because retirement is expensive, and relying solely on CPP and OAS won’t make for a comfortable living. The best practice is to try to invest at least 10 per cent of your annual earnings in a properly diversified portfolio and as early in your life as possible.
There are three basic buying techniques investors are currently using. The first is dollar cost averaging (DCA), and it’s a suitable strategy for just about anyone, especially if you’re new to investing. It works like this; you buy into an investment, typically an ETF or mutual fund portfolio, at regular automatic intervals, such as every paycheque, regardless of the price of the investment on the day you’re buying. Over time, and with many small purchases, you take advantage of an average price of the investments you’re buying. The average can sometimes be a better price than if you were to try to time your purchases on a “down” day in the market.
The second is laddering in, and it’s a suitable strategy for people who have excess cash waiting to be invested or those on commission-style pay (less predictable). With this technique, investors buy less frequently (say every eight weeks), and typically with slightly larger amounts compared to DCA. Some laddering investors hope to purchase funds, stocks or bonds on “down” days in the market. However, if they don’t succeed at timing the market, which is extremely hard to do, their somewhat regular purchases form an average price, similar to DCA.
Lump-sum buying is the third approach and is suitable for skilled investors who already have a well-established investment portfolio. That’s because large chunks are invested all at once, typically when the market has had a series of “down” days. To be effective, these investors diligently track their potential investments and are willing to take the risk that they might not time their purchase at the lowest price. On the flip side, they might buy a good-quality stock at a bargain price. It’s important to note that not even professional money managers know the precise timing to buy funds, stocks or bonds at the lowest price.
Greater focus on the need for emergency savings and insurance
Emergency funds and proper insurance are more important than ever. Statistically speaking, emergencies happen every seven years. Will there be another pandemic? No one knows. But being financially prepared will help. As a best practice, build up at least three months’ worth of essential costs in a savings account. This money should not be invested in the market!
Of equal importance is having a thorough understanding of your insurance protection; home, auto, life, critical illness and disability coverage. While you’re in quarantine, review your policies virtually with an insurance professional and don’t skimp out on having the right protection.
Get the latest in your inbox
Never miss the latest news from the Star, including up-to-date coronavirus coverage, with our email newsletters
Spend based on what gives you the greatest value and joy
When cuts to spending have to be made, it forces you to prioritize what matters most to you. As we resume our normal lives, hopefully in the not-too-distant-future, why not continue to live frugally? Trim expenses that don’t bring you joy or contribute to a healthy way of living.