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youngmoneyadviser q&a

Question from Anonymous: I’m 35, my husband just got laid off due to COVID-19, I luckily still have my job, but the threat of being laid off is real if we aren’t through this in three months. We rent. I earn $65,000 a year. We have two kids at home with us and are being refunded our daycare costs, $1,500 a month. I know we should be saving that but we find ourselves panic buying. We are buying books, crafting supplies for the kids, endless toys to keep them entertained and we catch ourselves emotionally spending money on things to make us feel happy. We can just make ends meet for now but we feel like we are spiralling. What can we do to stop feeling so out of control with our finances in such uncertain times?

Answer from Shannon Lee Simmons, financial planner and founder of The New School of Finance: Hey there, you are not alone in this. This is a very common phenomenon that I see all the time. Even before the pandemic. Stress and panic can lead to overspending at a time one should be saving the most and spending the least.

When you feel out of control with your finances, overspending happens because it can feel like there’s no point in trying. “It’s all out of my hands anyways... why bother?” Emotional spending also happens because feeling out of control is scary. Fear makes us seek out comfort. The good news is, there are some small things that you can do to feel more in control.

1. Free up cash flow where you can for a short period of time.

Take a look at your expenses. You’ve already mentioned that $1,500 is no longer an expense that you need to worry about. Perhaps there are others? If you have any savings going to accounts where you can’t easily access money again, like RESPs, RRSPs, maybe stop your monthly contributions for three months. If you’re breaking even each month, you can redirect this money to a high interest savings account to act as an emergency account for your family if you eventually lose your job. If you don’t lose your job than you can take this money and invest it back into those accounts where they were originally supposed to go. You’re not stopping saving, you’re redirecting so that you have easily available liquid money during a crisis. Once the crisis is over, you’re right back on schedule.

2. Find the right balance.

Give yourself permission to spend a reasonable amount of money on things that make you feel safe and calm. For many of my clients, this has been something that reminds them of their former life, before social distancing. Panic can put us in an all or nothing mentality. I’m going to spend all of my money or I should save every single penny. You feel unhappy either way. Allow yourself to spend some money that makes you happy and don’t feel guilty. Just ensure you’re not going into debt to do so.

3. Try to avoid debt if possible.

You mention that you’re breaking even for now. That’s good. Going into debt while you’re in crisis mode is like kicking you while you’re already down. If you have the option, try to break even each month so you don’t have to dig yourself out of this financially later on.

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