Reflections on Financial Planning After the Pandemic

As I reflect on the four years that have passed since writing my first book on financial planning I’m quite surprised at how our world has changed. Many of the certainties we took for granted and even assumed were guaranteed have been completely uprooted. Unfortunately, to be replaced with a new sense of insecurity. Hence, “Financial Planning After the Pandemic”.

Consider the following:

• For the first time in our history every Province and Territory declared a state of emergency simultaneously.
• People were prevented from working and told to go home and stay home.
• Schools, businesses, arenas, libraries, museums and daycares were closed.
• Non-critical construction projects were put on hold.
• For the first time in history the Olympics were cancelled.
• Oil hit an all-time low of 15 dollars a barrel.

These events certainly tested our beliefs in what we considered guarantees in life. Regretably, the toll taken on our personal lives was even greater and shattered the concept of life guarantees.

Failed Assumptions

We always assumed that employment would be available so imagine the shock when people were told to quarantine. Many quickly realized the CERB (Canada Emergency Response Benefit) simply wasn’t enough to pay their monthly bills and service household debt.

Sadly with few options available many simply went further into debt. The average inflation rate for the twenty year period from 1999 to 2018 was a mere 1.92 percent. Many people believed inflation was an outdated idea that would never affect them. These last four years have shattered that average with inflation peaking at 8.1% in June 2022.

With little other recourse our governments have raised interest rates to combat the out of control inflation. Faced with historically low interest rates and the blind belief the rates would remain low, many rushed in and purchased homes leaving no safety net against rising interest rates or job losses.

An Uncertain Future

So if our confidence in guarantees is gone how can we prepare for an uncertain future? I suspect many have learned the hard lesson of buying the most home they could afford with little margin of safety against interest rate increases.

Emergency Fund

Prior to the pandemic the idea of an emergency fund would have been considered an insult to the average person. The idea that employment wasn’t guaranteed, inflation could rise, and mortgage rates might increase would have been considered absurd. No more. The purpose of an emergency fund is to be prepared for an uncertain future. The pandemic was assuredly the greatest example of uncertainty we’ve faced in our lifetimes.

As the pandemic fades from memory will we once again become complacent and believe in those guarantees that let us down in the past? Most likely the idea of an emergency fund, saving for retirement and a margin of safety will once again be discarded. Will we fail to heed the difficult lessons from the last four years? The greatest wisdom comes from learning from our past.

In my E-books (“Water Barrel” and “The Balance”) I discuss simple methods to live sensibly for today, take charge of your financial affairs, and invest safely for the long term. For more information please visit David Penna Amazon.