What to do with a sudden income boost | Refresh Financial

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Spending Less During the Pandemic? You’re Not Alone

saving cash

 

Many Canadians lucky enough to still have an income of any kind are discovering they're actually saving money during the pandemic. With bars, stores, spas, movie theatres, restaurants and more closed due to COVID-19, there's simply nowhere for people to spend their money. Plus, many people are now working from home, saving on their gas bill. When they do need to drive anywhere, gas is much cheaper. 

The money you are saving is like having a sudden influx of extra income, which is a great opportunity to get into some good financial habits, securing your financial security for years to come. But what is the best way to do it, and how do we get the most from these savings while they last, and can we continue to save in this way once the pandemic is behind us? 

It’s important to remember that just because you have more available money, it doesn’t mean you should increase your expenses. Try leaving your spending the same as it was (or less - check out these cost cutting tips) and use your surplus for the following:

1. Pay down your debts

Your debts are costing you money every month. The faster you pay them down, the less they will cost you. You can use your saved cash in this way to increase your monthly cash flow even more. As a bonus side effect, your credit score will reflect your good new habits and you’ll unlock better interest rates as someone with good credit saving you even more money. Included in this is catching up on any debts in arrears. If you owe any money on loans, getting these payments made first is your number one priority.

2. Save an emergency fund

This is financial guru gospel and cannot be ignored. Saving an emergency fund has been the sole determining factor preventing foreclosure and bankruptcy for countless people. It’s most commonly advised to save at the very least three months worth of expenses in a savings fund. Even better is if you save it in a high-interest savings account so your money grows as you keep it tucked away.

3. Save for retirement

This, unfortunately, is a part of life often overlooked by Canadians, but whether or not you live comfortably in retirement is entirely dependent on what you do about it now. Putting money away into an RRSP or other form of savings, and doing so steadily, will ensure you’re not just barely scraping by when you’re no longer working. You can find ways to invest this money as well, so that you see it working for you and growing as you near your retirement days.

4. Invest in cost-efficiency

Use your newfound cash to make your home and vehicle more energy efficient. For example, purchase energy efficient light bulbs when they need replacing, add extra insulation to rooms that are particularly cold. This will save you money in the long run by lowering your bills and expenses. If you ever lose some of your income, you’ll be glad you did this when you could.

5. Invest in your career

Maybe the only thing preventing you from getting that promotion is the lack of a certain skill or certification. Go get those skills so you can turn your increased income into even more income.

Things you shouldn’t do with your extra money:

1. Don’t use it as an excuse to spend more

All those independently wealthy financial gurus out there didn’t get that way spending money. Wealthy people who’ve made their wealth themselves are often frugal people who save, save, save no matter how much they are making. Just because you are saving money on bars, gas, and entertainment, it doesn't mean you should spend more on online shopping!

2. Don’t use it as a reason to take on more debt

When it seems you've got more money, it’s easy to tell yourself you can afford to use your credit card more but often that results in more of your credit being used, and not necessarily more of it being paid down. As such, your debts can tend to grow faster when you’re making more money. Then, when the economy opens up again, you'll find your expenses go up again, and you have even more debt to pay off now.

3. Don’t use your reduced expenses as a reason to get in over your head

This is not the time to take out a loan that you can only afford because of the lowered expenses. As soon as life reverts to normal, you might not be able to afford the repayments.

Will the good habits last once the pandemic is behind us?

Once you're in the habit of putting money towards building a better future, can you stick to those good habits? That remains to be seen. Once the economy opens back up, so too will our wallets as our spending options, once again, become almost limitless. Try to stick with it. It’s easy to see extra money as a reason to spend, but remember, you've only got that extra money because you're not spending it on things you would when life is "normal". All you’re doing if you increase your spending again, is taking financial stability away from your future self. At some point in the future, you’re going to wish you’d saved all that money and you’ll forget all about the junk you spent it on. Make stability and security your priority and you should be able to turn this extra money into a promising and stress-free future.

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