Making Good Financial Decisions During COVID-19
As you have no doubt noticed, the Canadian economy is going through a very difficult time as a result of the current pandemic. There are fears of massive job losses and bankruptcies for both individuals and businesses.
Thankfully, the government is introducing a number of measures intended to help Canadians and reduce the negative financial impact of COVID-19. Still, many Canadians are concerned about how their finances may be negatively affected by the pandemic.
Even though the government will do what it can to help, it is important for us all to take a look at our individual financial circumstances in order to see what decisions we could take now that could have a positive impact on our finances, or at least reduce the negative impacts.
Evaluating Your Current Financial Situation
Before jumping into making important financial decisions, it is important to assess your current financial situation by determining how (if at all) the COVID-19 pandemic has impacted you financially.
Having a clear understanding of how your financial situation has changed is going to help make rational and appropriate decisions about the actions you need to take.
What Was Your Financial Situations Prior To COVID-19?
Sometimes it takes a major crisis such as COVID-19 to remind us of basic financial good practices and whether we have been mindful of these good practices. These include:
- Debt Management: Do you carry high interest debt or are you in control of your debt?
- Emergency Fund: Having enough cash to cover a few months of expenses is always a good idea and can help in all sorts of situations, such as job loss.
- Saving for the long term: Retirement is one such goal, but other goals can include saving for a mortgage down payment, or for the education of your children.
If you have a good handle on these, it’s fair to say your financial situation prior to COVID was in reasonable shape. Otherwise, you were probably on shaky foundations, which could make the impact of COVID even stronger.
How Could COVID-19 Impact You Financially?
The clearest and most immediate financial impact of COVID-19 is likely the way it has affected your cash flow. As the saying goes: Cash is King!
If your workplace is impacted, then it is likely your income has suffered as a result of COVID-19. Many people have already experienced this and as of mid-April, Canadian unemployment rate seems to be hitting a 70-year high.
It is also important to keep in mind that many others who are not affected yet, may be affected in the coming weeks and months as the scale of the economic downturn starts to become clearer. We can expect many businesses, especially small businesses, to be severely hit and possibly go out of business.
Has your income been reduced or eliminated? Many households have already experienced a direct impact, while other households haven’t yet experienced any changes in their income.
In this series, we’ll review the different groups that people may be experiencing, as we navigate the changing circumstances of the COVID-19 crisis.
If you have a good financial foundation and your income has not been affected, you are in a better shape than most people. Still, as the situation in the coming months could be quite uncertain, it is important to make contingency plans.
- The most immediate action item should be to review your expenses and classify them into essential and non-essential and aim to reduce the non-essential items as much as possible. The cash flow this would free up can become critical in the coming months depending on how the situation evolves.
- Put any extra savings in your emergency fund. If you do not have one yet, this is a good time as any to start one.
- If the recent stock market swings had you worried, re-evaluate the risk profile of your investment and retirement portfolio. Talk to a financial advisor to check if they are right for you and your investment needs.
On the other hand, if you were on shaky ground prior to COVID-19 and your income has been affected, you need to be much more proactive.
– Taking a hard look at your expenses and budget would be a good place to start as you need to make sure you cut all non-essential expenses.
– The next step would be to look at your debt obligations. Fortunately, many lenders are understanding of the current situation and willing to work with their clients to find solutions. There is even the possibility of postponing your mortgage payments. However, you should be aware that in most cases the lenders would continue to charge you interest for the payment postponements and you would end up owing more than you did before.
– If you are unable to pay your rent and other utilities, talk with your landlord and service providers to work out a deferment and repayment plan. Evictions have been banned in almost all provinces for the time being, and some jurisdictions are providing rent and utility support. Keep yourself up to date on all support available.
– The most important element is to look at all the financial support available through the government. You may be aware of Canada Emergency Response Benefit (CERB) which as of mid-April is providing Canadians who have lost their job due to COVID-19 up to $500 a week for up to 16 weeks. Detailed information available here: https://www.canada.ca/en/services/benefits/ei/cerb-application.html
However, you should also know that the government is offering a 75% wage subsidy to employers who keep their employees in their jobs. In other words, your employer only has to cover a quarter of your wages. In some cases, it may be a good idea to discuss this with your employer as a way of avoiding income loss due to being laid off.
We at Finjoy will continue to monitor the situation and provide updates on the most important information we think would be of use to you.