Claiming at home work expenses for a household
I wrote a blog in December 2019 when I was worried about a potential recession and job losses. Little did any of us know COVID-19 would result in the world shutting down and a record number of layoffs.
Canadians have been living close the margin and we had already seen insolvencies creep higher over time – but not overnight. There is a real sense of panic right now but I think we all need to step back and breathe. It is still too early to throw in the towel.
Here are the considerations I put to you in December, and they ring true now more than ever:
Over the past year, I have worried about household debt levels, encouraged Canadians to save, and even warned the day of reckoning was coming if interest rates inched higher. If borrowing costs had risen, that would have had the potential, in my opinion, to tip households into financial failure. I worried that for those living so close to the financial margin, dealing with even a slight rate increase would have pushed them toward insolvency.
In reality, we continued to spend during eight interest rate announcements in 2019, with the Bank of Canada standing pat at 1.75 per cent. That benchmark rate has moved even lower to 0.25 per cent in wake of the COVID-19 pandemic.
The low interest rate environment isn't likely to change in the near future.
We managed to muddle through 2019 relatively unscathed. I may have been wrong on the day of reckoning for Canadians in 2019; however, I feel it could still happen for Canadian households if a job loss occurs and your standard of living changes.
In either case – a rate change or job loss – the outcome is the same. Households will be forced to face their own financial facts. Only you know how your family would be impacted given either scenario, or in the wake of another wildcard altogether such as the loss of a spouse or partner.
On the cusp of 2020 I was still optimistic about our financial future. And while I'm still hopeful today, I'm realistic enough to recognize we have to confront the brutal financial facts before us.
When we do come out of COVID-19, I believe Canadians will have a very different money mindset. We will think differently about think about money, what we spend our money one and about giving back more consciously.
In the meantime, here are a few considerations to help you get through.
1.Set family financial goals. Determine where you want to be a year from now. Share the goal, lock it down and write down. Solicit ideas from the whole family on how you will get there and highlight what you are willing to cut out. Get creative: Shop in your own closet, make your own coffee, enjoy a staycation, look at your weekly food budget, negotiate lower contracts, etc.
2. Know your numbers. Cut discretionary spending and redirect savings towards debt. Make this a household challenge. Try paying off the small balance first even though experts will tell you pay of the one with the highest interest rate. Why? Because once you get rid of one outstanding debt, it feels great and momentum builds. Don't get discouraged. It took you some time to get into debt and it will take some time to get out of it.
3. Establish an emergency fund. Start small. Apply for a line of credit or credit for emergency use only. While I may have been wrong about rising interest rates and the knock-on effect to households this year, it’s still worth having a little financial flexibility in your household in 2020. And I know I'm 100 per cent right about that.
Finally, back to where we are today. We are living through some very scary times but we will get through it. Our financial lives will be different. We have all come to realize we can spend less in so many areas, and I'm now 100 per cent certain financial habits of the past decade are over.