A quick financial guide to help you weather the current pandemic.
The current pandemic has left millions of Canadians feeling anxious about their financial situation. Here is a quick guide to help you refocus your finances and come out on top during this difficult economic time.
No one likes to think about money — take the steps to protect yourself and your family.
Control your expenses
The current pandemic will last months and now is a good time to cut some expenses. Take a break from Netflix to review your past expenses and identify two to three types of expenses you can cut immediately.
Identify controllable expenses — items you don’t need. Have a few monthly subscriptions such as Netflix, Prime, Spotify and more ? You can probably cancel one or two right now while still entertaining yourself with your favourites. Try to downsize, consider transferring your car lease and cancelling the storage locker you have been renting for overflow. You will be surprised at how quickly you can make room in your budget.
Remember that some expenses will naturally disappear as a result of the pandemic and social distancing. Travel, restaurants and outings will be drastically reduced.
Be careful in the next few months not to take on additional and unnecessary expenses. Remember to stick to the necessities and identify old temptations that you might fall back into. As an example, I tend to online shop out of boredom.
Be flexible with yourself, you may have to incur additional expenses during this time of crisis. It’s about being pragmatic. The pandemic is the right time to decide what you can easily live without.
Secure your revenues
There have been quite a few lay-offs in the news and we should all be prepared for more. If you have been part of lay-offs or believe you might be facing lay-offs in the near future, now is the time to prepare.
As soon as you are laid-off, apply for employment insurance (EI). The government of Canada is offering $2,000 a month for up to four months to those who have lost work as a result of COVID-19. Find out more here.
Update your CV right now and slow start searching for a new job. Be patient as this might take some time. There are a surprising amount of companies still hiring. Don’t hesitate to ask for help from your network.
Look for alternative sources of revenues. Always focus on your current skills and find opportunities for freelancing in the meantime. Please watch out for scams. There are always “get rich quick online” schemes.
Take the social distancing as a time to up-skill. Build your your career, identify skill gaps and spend some time learning. There are lots of online platforms that are offering free or reduced-pricing on courses through the pandemic.
Build an emergency fund
You should have six months of liquidity on hand. That means having six months worth of your expenses in a savings account. It does not mean adopting toilet paper as a new currency.
Roughly calculate how much you will need to spend during the next six months and have that amount in a savings account at the bank. Ask the bank for new savings account, it’s free and will ensure you are not needlessly spending it. There’s no need to rush to the bank to take out cash and put it under your mattress. The money just needs to be easily accessible so that you won’t need to sell investments or incur debt to pay for expenses.
There are many times when this is not possible. Try to avoid using high-interest debt to pay for expenses; such as credit cards or quick-cash loans. Use line of credits with lower interest rates where possible.
Defer your home expenses
If you own your home, you can apply to defer mortgage payments for the next six months. Take advantage of this. If you rent, you should speak to your landlord about having them defer mortgage payments and lowering the rent. Remember, this is a negotiation. Your landlord has other expenses to pay than the mortgage. Find out more about this here.
Manage your investments
It’s really hard to check your investments right now without tearing up. Know that the market has historically bounced back and now is not the time to panic sell. Take a breath, have a tea and stop checking it. It’s been proven that those who panicked and sold during major historical market crashes, lost out in the long run.
If you absolutely need to sell right now, that’s alright. Take a loss and don’t forget to claim investment losses next year when you file your taxes. It will offset gains you make later. Learn more about this here. Do not sell anything in your tax free savings account, you will not be able to offset those losses and may even lose contribution room.
For those of you that want to buy “the dip” and take advantage of the low stock prices, now is your chance. Please know that it’s practically impossible to find the lowest point in the market. So buy shares of companies that you know can recover and wait. You can also buy index funds to diversify since the market will generally recover. You should only invest additional money in the market if you have a (1) sufficient emergency fund and (2) no high-interest debt to repay. Don’t even think about incurring debt to make an investment.
File your taxes
Taxes and financial security might seem counter intuitive right now, but trust me. File your taxes right now, even though the deadline was extended to June 1, 2020. If you are owed a refund, take the refund and use it to build your emergency fund. If you owe money, you have until September 1, 2020 to pay it. You also now know how much you owe and can prepare for that expense. It’s a win-win situation. Find out more here.
Cancel your vacations
We shouldn’t be traveling right now even though I am dreaming of sipping a drink on the beach. The government of Canada has issued a global travel advisory. Find the advisory here. Take advantage of this and call your airlines, hotels and others to cancel your trips. Do your absolute best to obtain a refund. If they offer you credits, say no and keep asking for a refund.
You can also leverage your credit card companies to file a claim and obtain a refund. Be prepared to wait hours on the phone, I did. Once you obtain a refund, add it to your emergency fund.
You might come out of this crisis with new money habits that will profit you in the long-run. Use this opportunity to secure your financial future. We will get through this, one step at time.