May 22, 2020
Mindless consumption as we ease out of lockdown could threaten your financial security
Haircuts. Dining out. Drinks with friends. Shopping. Movies. Gym visits. Test drives. Open house tours.
As the provinces slowly reopen, economists agree that Canadians will be rushing to do and buy just about everything they went without during quarantine.
This surge in the circulation of money is bound to help stimulate the economy. To what degree, we don't know. But the road to full economic recovery is uncertain, and that means jobs, pay rates and costs for goods remain up in the air.
If you blow the doors off your spending during reopening, it could harm your financial security.
My advice is to approach reopening in moderation in the following ways:
Slow down and revisit needs versus wants
What's critical to you and your family? This spending should be prioritized over nice-to-haves. When the essential needs are met, you can move on to what brings you joy. From years of research into the psychology of how we make decisions with our personal spending, I can tell you that the most effective way to prioritize needs over wants is to slow down. So, as your neighbours rush out to lease a new vehicle, sit on the sidelines and watch rather than participate. From this vantage point you can think more strategically about your needs and when the time is right to buy the things you want. You will also have the benefit of watching how Canada's economic recovery unfolds.
Let a budget be your guide
Whether you're still laid off or your job is steady, strategic day-to-day spending is rooted in effective budgeting, which is even more important when money is tight. Before you hit the shops, create a budget to determine how much you have available to spend in each category. For the average Canadian, I counsel toward the following budget guardrails:
Housing (rent/mortgage and utilities): 35 per cent
Groceries and home supplies: 20 per cent
Travel (public transit, taxis/Ubers/Lyfts, car payments, insurance fuel and maintenance): 15 per cent*
Savings for short- and long-term: 15 per cent*
Entertainment, clothes and wellness: 15 per cent*
*If you have consumer debt, allocate 15 per cent by reducing the travel, savings and entertainment categories by five per cent each.
Use your new skill set - negotiation
The pandemic has forced all of us to be more value-conscious and to negotiate more effectively for our needs. Keep this skill during reopening. You should still seek the best prices for the greatest value for whatever you're buying. Take advantage of coupons, sales promotions, and more. Ask for the best price by presenting competitive offers. The beautiful thing about negotiation is that it takes time, which slows any inclination to impulse buy and allows you to reflect on your real needs compared to the offer you're getting.
Was a big-ticket spend in your financial plan before COVID-19?
Generally, when times are good, our financial plans contain higher-spending activities. For my husband and I, 2020 was supposed to be the year of home improvements (a basement renovation and finishing the back yard). But COVID-19 has caused everyone to reconsider their planned spending, and potentially set more savings aside, even if it's small.
Did you have big-ticket spending planned for this year? Moving to a new home? Buying a car? Hosting a wedding? Does this spending still make sense?
If you're worried about job security or you have consumer debt, it probably doesn't. But if you plan to go ahead with the purchase, the reopening will offer you terrific savings opportunities. That's because retailers need to incentivize consumers to buy so that inventory moves and restarts the business's sales engine. My basement renovation is looking to be approximately 15 per cent cheaper, should we decide to move forward.
With a big reduction in discretionary spending over the past two months, you may have a bit of extra cash kicking around. But a slow and steady approach to spending during reopening will help protect your precious resources and still bring a smile to your frugal face.
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