Your saving patterns may have changed as a result of COVID-19. If your ability to save has increased, you are not alone. Many Canadians are saving more than they usually would because their discretionary expenses have decreased, while government support programs have increased. In August 2020, Statistics Canada revealed that, on average, Canadians saved just 2-3% of their disposable income before the pandemic. That number has jumped to 28.2% since the pandemic hit Canada in early 2020.
This change may be partly because entertainment costs, including vacations, dining out, or going to the movies, have dropped or even vanished altogether. With the potential of extra money now available, there are several options to consider when thinking of increasing your savings.
Establish or augment an emergency fund
An emergency fund is essential to prepare for unexpected life events such as losing a job, adding a family member, or even facing a serious illness. When setting up an emergency fund, you should aim to accumulate between three to six months’ worth of your salary in an emergency account. Consider directing a percentage of your pay, equivalent to a restaurant meal or vacation that is no longer being taken, to a savings account, such as a tax-free savings account (TFSA).
When you decide to start paying off debt, it’s important to stay disciplined and commit to your financial goals. Paying off a loan, credit card, or student debt sooner results in fewer interest rate payments in the long-term. Canada is currently in a low-interest-rate environment; if you pay a higher interest rate on any debt, contact your financial institution to find out if they can lower it. Canadians with debt can also contact the Credit Counselling Society for help if debt has become unmanageable.
Increase contributions to individual RRSP or employer-sponsored plan
If you have additional savings funds available, make contributions to an individual or group savings plan. The more contributions you make, the greater impact you will make on your overall savings. For example, a monthly $50 contribution for 25 years would translate into an additional $28,636 in your retirement account, based on a 5% rate of return. A $175 monthly contribution for the same time frame and return rate would add $100,226 into the retirement account.
If you have children and have not set up a Registered Education Savings Plan (RESP), consider creating one and funnelling some of your extra income into it. The most attractive feature of an RESP is the Canada Education Savings Grant (CESG), which adds 20% to the first $2,500 of contributions you make into an RESP.
Purchasing term insurance is another excellent way to invest in your future with additional savings. If you do not currently have life insurance or would like further coverage to ensure your family is taken care of, term insurance has more affordable premiums than any other life insurance product.
There are many smart ways to allocate additional savings you may have accrued. If you are interested in any of these ideas, particularly establishing an RESP account or purchasing term insurance, reach out to your Cowan financial advisor, who can help you pick the path that is right for you.
As a member of the Greater Kitchener Waterloo Chamber of Commerce, you can access the exclusive One Source Advantage program from Cowan Insurance Group. One Source Advantage offers programs like group benefits and retirement solutions, commercial insurance, personal home and auto insurance, and employee assistance programs.
Learn more about our program at cowangroup.ca/chamber.