Calgary Journal Online

The current uncertainty regarding job loss should be the number one motivation for Calgarians to increase their savings this year, says a financial analyst.

“This is a perfect example of when you need to be saving for a rainy day,” said Elizabeth Hamilton-Keen, CFA, and senior portfolio advisor for Mawer Investment Management Ltd. She says the recession provides a socially acceptable excuse to stay home and save money, especially for those in their mid 20s to 40s.

According to Statistics Canada, Alberta recorded the largest job loss of 16,000 people in December. Now that Christmas is over we can expect a further increase in job loss said Robert Rothenburg, branch manager for Rothenburg Capital Management.

Dale Platten is a Calgarian that was laid off from CP Distributors, a commercial hardware company, three weeks ago. With his wife Paige at University for her law degree he wishes they had made more of an effort to save. He also has two kids, a daughter Julie age 13 and a son Charles who is 18.

“We didn’t put money away before and I wish we had,” Platten said. “Over time we had put money into a mortgage account but looked at that more as an emergency fund than savings.”

Prior to his lay off, Platten had fears of losing his job due to the impact the oil and gas industry has on his company. Thinking back Platten said it was just a matter of time.

“We have cut out cable, we take our own lunches, shop for the values at the grocery store,” Platten said. “We didn’t know how we were going to stretch our dollar any further but you find ways.”

Elizabeth Hamilton-Keen says not saving for future expenses only works for people that have won the lottery and everyone needs to be careful in 2009.

Photo: Mawer Investment Management Ltd.

Hamilton-Keen’s number one recommendation to Calgarians is to make sure they have an emergency fund set up for things such as job loss or injury. Ideally, ten percent of each paycheck should be placed in a savings account.

Rothenburg agrees that an emergency fund should be set up. His advice is to make sure you have at least three months salary saved.

“It is difficult to save with the cost of living such as mortgages and car payments,” Rothenburg said. “But we need to look at things more closely than in the past when it comes to cost and job security.

As for tips on just where to put your savings, Rothenburg says to look for something with a high interest rate, at least two and a half percent to three percent. Despite the drop in interest rates, many banks are still offering two to three percent interest with new activations.

For those just starting a savings account Hamilton-Keen recommends setting up an RSP account. There is incentive to leave the money in the savings account until needed, as tax must be paid upon withdrawal.

Both Hamilton-Keen and Rothenburg also recommend taking advantage of the new tax-free savings account. Up to $5,000 can be contributed annually and the interest made will not be taxed.

Platten has also recently set up a tax-free savings account and says he can see the benefits already since they can take the money out when needed. He is also paying close attention to their credit and trying to pay it off so it doesn’t hurt his family in the long run.

“We aren’t looking to put that much [$5,000] in right away, but we put about $100 a month in since it’s all we can afford right now,” Platten said.

Although Platten also went down to the employment office and filled out forms for employment insurance as a safety net, he still says he would rather be working. He is currently focusing on a promising job prospect with Levitt Safety that sells safety products to industrial companies around Calgary.

“Don’t wait to save what is left at the end of the month, there won’t be anything, ” Hamilton-Keen said.

She also recommends adjusting your monthly savings according to your lifestyle. If you receive a bonus or pay raise, increase that ten percent you put away every month to 12 percent.

Other things to save for include having children, buying a house and retirement. Saving for these items falls under what Hamilton-Keen calls ‘spending at a later date.’

“Not saving for costs that will come at a later date only works for people who have won the lottery,” Hamilton-Keen said.

When it comes to investments Calgarians shouldn’t put in money that they will need in the next six months. Most portfolio advisors expect and keep economic slumps in mind, said Hamilton-Keen.

“We are expecting this, but not to the degree,” Hamilton-Keen said. “It is just that we haven’t gone through this in a long time and people forget what it is like.”

U of C economist Frank Atkins agrees, saying that while the economy is really slowing down it was also something we had been expecting.

“You cannot say everything is wonderful and rosy but I believe it will be very short lived,” Atkins said.

The Alberta economy is nowhere near the true meaning of the term recession he says. There are already signs of U.S. recovery this year, and then oil prices will come back up, Atkins said.

In the mean time Rothenburg and Hamilton-Keen advise people to be conservative for the next year, get rid of debt, avoid buying anything extravagant, and have a balanced spending and saving plan.