Reviewing your financial priorities in the face of crisis
Based on the TD Newsroom article published September 7, 2020
In the early days of the COVD-19 pandemic, Cyrus Pourmoslemi began noticing a shift in the questions his clients were asking.
The Toronto-based TD Financial Advisor was accustomed to clients asking for advice about how to save towards longer-term goals, like paying for a first home or saving for retirement. But as the gravity of the COVID-19 situation took hold, he noticed a change in his clients' priorities.
"The onset of the pandemic brought a behavioural shift towards establishing shorter term savings and ensuring customers had enough money to cover their basic expenses," Pourmoslemi said.
"People were finding they were navigating a loss or reduction of income without emergency savings. Unfortunately, many of us don't often think that something like this can happen to us, or we assume we'll be able to get back on our feet quickly. But a lot of the conversations I'm having with my clients now have shifted to the importance of having an emergency savings fund in place and how to do that."
While the COVID-19 situation in Canada continues to evolve, Pourmoslemi's clients are once again asking about investing for the longer-term. He continues to recommend that clients take the time to create an emergency savings fund to help be prepared for a future crisis or unexpected financial event. "Before the pandemic, you may have been putting money towards something like travel," he said.
"But now that chances are slim that you have used that money for travel, it's a good idea to re-purpose that money towards helping you build an emergency savings fund."
Pourmoslemi suggests the following four tips to his clients who are looking to review their financial priorities in the face of a crisis, and these tips may help you too:
Understanding your cashflow
Understanding your cashflow is always important, but after an unexpected financial event, knowing what's changed in terms of how much money is coming in and how much is going out is even more critical, says Pourmoslemi.
Pourmoslemi has been advising his clients to seriously consider applying all incoming funds to immediate basic needs and leaving any long-term financial goals on the sidelines for the interim.
"As a first step I'd recommend breaking down your pay cheque or whatever cashflow is coming into your household to see how much of it must go to cover your necessary needs and expenditures and then determine if any monies remain to apply towards your wants or towards long-term savings," he said.
"Using a personal cashflow calculator can really help with this exercise, instead of spending hours putting together an updated budget with several categories for expenditures."
Pay attention to changes to your financial situation
Pourmoslemi says choosing between saving any extra funds available (once you've addressed your basic needs) or using them to pay off debt is a question many Canadians struggle with, and what to do depends on a variety of factors including the interest rate environment, your goals, debt load, and your current financial picture.
It is often the case that building an emergency fund, no matter how small, with any money left once necessities are paid, can help to reduce their financial anxiety for the future, Pourmoslemi said. Setting aside some money on a regular basis, once necessities have been covered, to create an emergency savings fund, can also limit having to rely on using credit for an unexpected future expense.
If you find yourself struggling to save for a rainy day, Pourmoslemi said it's probably worth considering restructuring your debt which could help improve cash flow, but you should speak to an advisor to discuss your unique situation.
"The advice that I would give people anytime, but especially during an emergency, is not to be afraid to talk to an advisor, and when you do, ask questions to ensure you understand the advice being given," he said.
"Many people are still intimidated when it comes to speaking to an advisor and talking about money, and can be even more intimidated during a crisis, but a lot of good financial habits and strategies can come from breaking the ice and having that conversation."
It's also very helpful for Pourmoslemi when his clients are open and honest with him about their finances, because that allows him to provide them with the best advice that he can.
Establish a savings habit with a pre-authorized transfer service
Even during a crisis, establishing an emergency savings account can be done. To help slowly build up an emergency savings account, Pourmoslemi recommends considering using a pre-authorized transfer service (PTS).
This lets you set an amount of money that's automatically deducted from your account on a regular basis and deposited into a separate account so that you aren't tempted to spend it.
You can set one up online, choosing to deduct any amount on a schedule that works for you. Pourmoslemi advises that the amount you should consider as your first savings goal is about three months' worth of your living expenses.
"What I tell clients who are setting up a PTS for the first time and are wondering how much to put aside each month, is to start with an amount that you know you can afford to put aside right away," he says.
"Do this for three or four months and then reassess. It's better to start small and see how it works and then adjust the amount to suit your needs and savings goals."
The most important thing, he adds, is simply creating the savings habit and then enjoying the satisfaction of watching your savings grow over time.
Save small amounts
If a pre-authorized transfer service doesn’t seem like a possible strategy for you right now, setting aside small amounts each time you use your debit card is another savings strategy you could try.
TD customers who have a savings account can use our Simply Save program you can start top funnel money into your savings account. The program rounds up your debit card purchases by a minimum of fifty cents to a maximum of five dollars, as set by you, and places the extra rounded-up funds into your designated savings account. Pourmoslemi says this method of saving, while modest, can be a good way to start an important habit.
"Any amount is a good start when it comes to saving," he said.
"When you start seeing your savings balance grow, it can help motivate you to want to save more, including finding ways to reduce your spending as well. Doing this can help you focus on working towards achieving any long-term financial goals you may have."
This content discusses current topics of interest in a general and informational manner only and may not be appropriate in all circumstances. Please ensure that you seek advice personalized for your situation from the appropriate professional, consultant or subject matter expert on the topic of interest to you.
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