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carrick on money

I invited Natasha Knox of Pax Planning to do a guest Q&A for the newsletter because she’s an expert on financial behaviour, and she delivered in a big-time way. As you’ll see below, Ms. Knox may have solved one of the biggest branding problems in personal finance.

Emergency funds have proven to be essential in the pandemic, but the term is so dated and square-sounding. An emergency fund sounds like something Ward Cleaver would have recommended to Wally and The Beaver. Read on to see Ms. Knox’s excellent re-branding ideas.

Q: Natasha, what have you learned about people and their spending habits in the pandemic?

A: One of the really neat things about this pandemic is that it showed people just how resourceful they could really be, and it highlighted for a number of my clients how low their spending could go, if they changed certain habits. They cut their spending to levels that they didn’t think possible prior to spring of 2020. I think it awakened people to how much choice they actually have in the amount they spend.

Q: There’s a lot still wrong with the economy - what do you make of the surge in house sales and prices in some cities?

A: I think that there are some logical explanations. There was some pent-up demand in housing purchases that were already planned, but postponed in early spring. Lower interest rates generally cause an uptick in interest in housing. Not everyone is experiencing the same deleterious income effects of the pandemic. Additionally, I think some element of the population is prioritizing their living space. I think working from home has been demonstrated to be far more viable than previously thought, and I believe there is some segment of the home purchases that are being driven by a plan to continue working from home on an ongoing basis. Where [home buying] crosses the line into fear-based territory is when we start to see behaviour such as bidding wars.

Q: How do you convince people to hang onto some of the money they saved when the economy was locked down?

A: Many people lack a properly funded emergency account. This is a great opportunity to put that in place. I prefer the term ‘contingency and opportunity fund’ to emergency fund. At the same time a small amount could go toward a splurge or a treat. Maybe 10 or 15 per cent of what was saved during the lockdown could go toward satisfying some of the pent up demand, and the remainder can go toward savings.

Q: How can people develop a ‘saving mindset’ where they derive at least partly as much satisfaction from saving as spending?

A: One helpful strategy is to connect with a ‘near-future self’ - a future self that is only six months or a year in the future. By setting shorter-term, achievable savings goals, people can accomplish the short-term wins that provide the positive reinforcement needed to continue the savings behaviour.

Rob’s personal finance reading list

Introducing the micro-wedding

CBC reports on how couples are getting around the distancing requirements in the pandemic by having small wedding with just a few guests. Big thumbs up for the more modest spending required for a micro-wedding.

Best credit cards of 2020 choose the best credit cards in a bunch of categories, including best reward card, best no-fee card and best for newcomers to Canada.

So you want to own a rental property

A well-rounded look at the pluses and minuses of being a landlord from a Toronto real estate agent. “Being a landlord is a job,” he writes.

Gold a gilded cage?

A financial planner offers a candid take on gold’s impressive rise this year and what it means for long-term investing.

Today’s financial tool

This one’s a real sign of the times – a guide from the Ontario government on how to add a second unit to your home. A tenant could help reduce the load of carrying your mortgage.

The money-free zone

The Sunday Long Read is a weekly e-mail containing a curated set of links to online articles on all topics. I usually read each edition from top to bottom and store any articles I can’t get to right away using the Pocket app.

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