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.

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About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

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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