Until late 2013, Calgary was Canada’s economic powerhouse. High-paying work was everywhere, and very easy to get. The city was defined by high wages and exorbitant wealth. So high the top-fifth of Calgarian households earned more than $363,000 per year — a figure that would propel you to the upper 1% or 0.1% virtually anywhere else. The bottom quintile still has a net worth of six-figures. Everyone had money, and everyone liked to spend it.
Oil started to fall in late 2014. The first wave of lay-offs happened in March 2015, and now as many as 25,000 Albertans are without jobs. With the layoffs came empty offices, and Calgary’s downtown core now boasts a depressing 17.7% office vacancy rate. The rental vacancy rate has also quadrupled to 5.3% and thousands are putting their homes up for sale only to find house prices have fallen more than 6%. Restaurants are empty. You can find parking anywhere, any time of day. The evening news has segments that focus on how to tell your children Santa won’t be visiting this year.
Consumer proposal and bankruptcy filings have increased by 28% in the province. The suicide rate eerily matches that number, climbing 30% this year. These statistics are dark, and turn what on the surface might seem like a minor economic inconvenience into a real tale of struggle. Many think Alberta’s bust is the price you have to pay for the boom. We have to suffer the bad because things are usually so, so good. I don’t necessarily believe that narrative, but I think it helps make sense of what is happening now.
This has changed how I look at income, savings, and debt forever.
I’m exhausted by the depression settling in the city I call home. I didn’t think it would last this long, but with every month that passes, there seems to be no end in sight. It has now gone on long enough to permanently alter my perceptions of real financial security, and how to get it. Some of my original views and opinions have been solidified, others have been entirely transformed. Below are the 6 ways my financial perspectives have changed in the wake of this economic crisis:
1. A line of credit is not a substitute for an emergency fund.
There’s a divided camp amongst personal finance nerds: one side will insist on keeping a cash emergency fund representing 3-6 months of expenses, the other would never keep five-figures earning <1% interest when they have a line of credit to see them through hard times. I have always been of the mind that cash trumps credit, but that belief has become set in stone over the past few months.
Humans are notoriously bad at predicting how they will feel in a situation, which is probably why the LOC-for-emergencies idea is so popular. In reality, the stress of being without income is swiftly compounded by that of watching your debt tick higher each month as you use your line of credit to pay your bills and buy food.
If you are upset that your savings account is returning little interest, remember the difference between 1% and 2% on $1,000 is only $10. If your savings account is returning only 1%, don’t go to Subway one day and then add the money you’ve saved to your emergency fund. Congratulations, you now have the same amount of money as you would if your account returned 2%. GICs also work.
2. Everything can go wrong at once.
Being laid off without an income is one thing, but watching your stock portfolio and the housing market topple down after you is quite another. Many who were expecting things like their company stock options or the sale of their primary residence to bolster their retirement portfolio have gambled and lost. For those in their 50’s and 60’s, there is no time for recovery. Their retirement will be different than expected. Oh, and the Canadian dollar has also eroded to $0.71 USD during the same time, so hope you weren’t planning to spend weeks in sunny Florida anytime soon.
On the other hand, students fresh out of university can’t get a foothold in their careers. After spending 4 years pursuing a degree that was meant to “guarantee” a great job at graduation, they are now scrambling to find any work at all. Their student loans will begin accumulating interest as soon as they walk the convocation stage, and the debt balance will quietly swell in the months that they try to secure employment with zero years of experience. Borrowing $20,000 or $40,000 probably felt like nothing when the average starting salary was north of $50,000, but now that that graduate income might be $0, your debt load is a crushing burden.
I feel like personal finance always approaches possible negative events as isolated incidences, like “what would you do if you lost your job?” and “what if your investments go down in value?” when the reality is this:
“You are fired. You are tens of thousands of dollars in debt. Your stock portfolio is tanking, and so is the dollar. PS. your house is worth $100,000 less than when you bought it. What now?”
I never thought everything could go to hell at once, now I understand that this is what you really have to prepare for.
3. Your biggest liability is a monthly payment.
Everyone knows all debt is bad, but few are in a hurry to pay it off. Most of us accept mortgages, car payments, and student loans as a normal part of life. We think it’s ok to use a line of credit to fund a vacation, or cover our credit card when we’ve overspent. We are comfortable with perpetual debt, because we believe in perpetual income.
But your income stream is not infinite, nor is it permanent. And when it disappears, your expenses don’t. The best thing you can possibly do for yourself is get out of debt as fast as you can, and stay there, because the less monthly payments you have, the more likely you are to survive the unexpected. It is easy to skip dining out for a month, it is impossible to skip a car payment. The more you owe, the more likely you are to lose everything in an economic crisis.
4. You can be without a job for a very, very long time.
The first major layoffs in Calgary happened in early 2015. Now, almost 12 months later, many of those people are still without jobs. Except now they will also be without Employment Insurance, and without any savings, assuming they had any in the first place.
In other words, you can run out of money. You can run out even though it seems impossible that you will ever be unemployed for 12 months straight or that tens of thousands of dollars of savings can dwindle to zero. You can lose everything, even if it took years and years to build. It can be gone in a matter of months, with no hope of recovering any time soon. Real hardship isn’t a few rough weeks or months, it’s being beaten down to a point you might never fully recover from.
5. You might never go back to what you were earning before.
I think we take for granted the steady progression of salaries in the workforce. In our minds, we will, of course, be earning more in our 30’s and 40’s and 50’s. This belief that our paycheques will always increase in tandem with our years of labour is what’s really fuelling Canada’s love affair with debt. We are so optimistic that the money will come later, and sometimes we are so wrong.
Calgarians knocked out of their six-figure jobs might never realize that earning potential again. Others whose pay was topped up with stock options and bonuses won’t be able to cobble together the same compensation packages, even if they are able to secure the same base salary again. For many, that was it. That was their heyday and it’s all downhill from here.
Now I understand that at any moment in your life you could be at your peak earnings. It could be right now. How would you treat your next paycheque if you knew you could never earn this much again?
6. I know nothing but abundance.
A year ago, I considered my income on the lower end of average. While I was proud of paying off my student loans and saving a lot for retirement, I still felt like I was behind when comparing myself to Calgary’s high-earning elite. I don’t anymore.
It seems crazy to me that I ever operated from any other perspective than that I am in a position of abundance, with more than I need to be comfortable or happy — and more than enough to give away. I have the luxury of earning enough to make ends meet and get ahead, and that is incredible. In the wake of an economic crisis where many people are struggling to keep a roof over their heads and food on the table, I have the privilege of not having to live on the edge. Some of this is my own hard work, but so much of it is just sheer dumb luck that I cannot help but be grateful for it every day.
This has inspired me to increase my charitable giving further in 2016, which I will talk about more in an upcoming post. In the meantime, like the rest of Alberta, I will keep waiting for the downturn to end.