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It's Your Money  

What to do with extra cash from COVID-19 savings

COVID cash conundrum

While many Canadians have faced financial hardships during the pandemic, there are many others who have amassed considerable savings during this same period.

Less travel, dining out and a whole host of pandemic related benefits have left many households with a lot more savings than they are used to. A report that was released at the end of last year suggested that $170 billion in excess cash has been accumulated by Canadian households and businesses throughout COVID-19.

So now that things are opening up again, what should you do with this cash if you’re one of the ones who’s been stockpiling it?

While a few big splurges might sound nice, now is the time to focus on major financial priorities instead. But which priority should take precedence? Should you pay down your mortgage, other debts, or focus on accelerating your retirement savings?

There is no one right or wrong answer here since everyone’s financial situation is unique.

For some, paying down the mortgage or other debts should be the top priority. These ultra-low interest rates won’t last forever and knocking down your capital owing now will mean that all future mortgage payments will be go more directly against the principal instead of to interest.

If you have any “high interest” debt such as a balance owing on a credit card accumulating double-digit interest rates, it is quite likely that this should be the No. 1 place to pay down.

For others though, it might make sense to let your debt level remain steady and to kickstart or increase your retirement savings. If you’re not taking full advantage of tax preferred programs like RRSPs or TFSAs and not maximizing any employer provided matching programs, putting your excess cash here might put you farther ahead.

And for some, the money might be best allocated to an emergency fund if you don’t have one already. Something that contains around six months’ worth of living expenses and is held in something completely safe yet still earning a little bit of interest each year.

The only way to know for sure is to run these different scenarios through a full financial plan. Not a one or two-page illustration that shows how much growth you might get in your investment accounts but a detailed plan that will run your options through a wide array of variables such as interest rate and inflation spikes, market crashes and different life expectancies.

Going through this process will give you a clear plan of where to best deploy your saved up cash and how to make the most benefit from all that we’ve been through over the past 18 months.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].

 



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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