COVID-19: 3 action steps to minimize its impact on your finances
If you’re beginning to feel the pinch of the pandemic on your pocketbook, you’re not alone.
According to a recent Angus Reid survey, 44% of Canadians have reported lost work and lost pay due to the impact of COVID-19—and that number is increasing every day. With all schools and most non-essential businesses temporarily closed across the country for the next few weeks (at the very least), both people and their budgets are being stretched to their limits.
While there may have been very little time to prepare for the ripple effect of COVID-19 on your finances, there are 3 action steps you can take right now to minimize its overall impact:
#1: Maximize your cash flow by activating an emergency budget.
There’s nothing like a global pandemic to highlight the importance of having an emergency fund. Yet the reality is that 49% of Canadians do not have any kind of emergency savings to tap into.
That’s where an emergency budget can take the place of an emergency fund.
“An emergency budget is simply a leaner version of your existing budget”, says Educators Certified Financial Planner professional Marian Ollila. “It basically involves trimming all unnecessary expenses to free up cash flow during times (such as these) when you’re faced with sudden financial challenges.”
To create your emergency budget, Marian suggests the following:
- Make a list of all your monthly financial obligations (use your bank statements as a point of reference)
- Then divide that list into essential (I.e. rent/mortgage, food, utilities) and non-essential expenses
(gym memberships, cable and streaming subscriptions, etc.) - Cancel or scale back on any non-essential expenses—at least in the interim
- For example, instead of paying for both cable and streaming services, consider choosing one main source of entertainment and pause or cancel the rest
Next, keep your emergency budget in check by:
- Resisting the urge to shop online. Because spending all that time at home can make it tempting to spend more money (than you have) on things you don’t really need.
- Choosing not to ‘binge-buy’ on groceries and supplies. Instead, be efficient with your budget by purchasing only what you think you’ll require to get you and your family through the rest of the social distancing period (leaving more items to go around for others in need).
- Avoiding ‘payday’ loans/cash advances. These types of loans are typically easy to get—reason being they also come with significantly higher fees and interest rates (which runs the risk of leaving you indefinitely in debt). Stay away from them at all costs.
Take your emergency budget to the next level by checking out ‘5 tips for saving up to $500 a month’.
#2: Cover your financial obligations by getting pre-approved for a low-rate loan or line of credit.
The sudden nature of school and business closures due to COVID-19 has left many Canadians scrambling on how to deal with the potential impact of this crisis when it comes to their personal financial obligations.
After all, bills still have to get paid—regardless if money is coming in, or not.
While personal savings should always be your ‘Plan A’ to cover any financial obligations, a low-rate line of credit can be a very effective ‘Plan B’ during times of crisis.
“Perhaps one of the few positives to come out these challenging times is the fact interest rates have plunged to historic lows,” states Chris Knoch —Mortgage Agent Level 1 – Regional Director of Lending Services at Educators Financial Group. “With the Bank of Canada recently dropping the overnight rate twice in the span of just a week, borrowing products such as mortgages, loans, and lines of credit have all suddenly become way more affordable.”
Affordability equals accessibility and this is especially important if you or your spouse/partner (or family member) happens to be affected by a temporary layoff due to COVID-19 closures.
Since there may be a gap between your last paycheque and when government assistance kicks in (see more for the latest development on that front below in #3), low-cost borrowing options—such as a line of credit, can provide you with the instant financial cushion you need to cover a short-term interruption in cash flow.
Tip: If you’re struggling to make bill payments right now, be sure to contact creditors immediately. Skipping out on payments without making prior arrangements will negatively affect your credit score—which can also prevent you from getting the best interest rates. However, if you reach out to creditors in advance and explain your situation, they may allow for a payment deferral (or moratorium) until your cash flow returns to normal.
Check out our super-low mortgage rates, exclusively for education members.
#3: Stay current on the latest developments in regards to your financial assistance options.
In addition to the immediate steps above that you can take to tighten your budget and cover any cash flow gaps, the Government of Canada is also stepping in to lessen the financial impact on individuals and families affected by the current COVID-19 closures.
New and enhanced financial assistance measures for pandemic-affected Canadians are as follows:
Canada Emergency Response Benefit (new 4-month initiative):
Beginning in April, the federal government will be opening applications for a taxable benefit of $2,000 a month for up to 4 months for every Canadian who has lost (or is losing) income as a result of COVID-19. This benefit will extend to even those typically ineligible for EI benefits (such as freelancers, contractors, and shift workers). Once applications have opened, they’ll be able to be completed through the Canada Revenue Agency’s My Account and My Service Canada Account online portals, along with a still yet to be determined toll-free number.
Canada Child Benefit (one-time enhancement):
In May of this year, the government will boost CCB payment amounts by $300 per child for the 2019/2020-benefit year. The overall increase for families receiving CCB will be approximately $550 on average.
Employment Insurance Benefit (temporary enhancement):
Effective March 15, the government is waiving the standard one-week waiting period, as well as the requirement to provide a medical certificate for quarantined individuals who claim EI sickness benefits.
Goods and Services Tax Credit (one-time enhancement):
In May of this year, the government will provide a special one-time GSTC payment that will see the maximum annual GSTC amount for the 2019/20-benefit year doubling. This will provide an average income boost of $400 for lower-income single individuals—and close to $600 for couples.
Further COVID-19 government support includes:
- Placing a 6-month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans
- Reducing required minimum Registered Retirement Income Fund (RRIF) withdrawals by 25% for 2020 in recognition of volatile market conditions and their impact on retirement savings (providing flexibility to seniors concerned about liquidating their RRIF assets to meet minimum withdrawal requirements)
- Pushing back the tax-filing deadline for individuals (other than trusts) from April 30 to June 1, 2020—however, the Canada Revenue Agency (CRA) encourages individuals who are expecting to receive GSTC or CCB benefits not to delay filing (to ensure the amounts for these benefits can be properly and promptly determined)
- Deferring the payment of any income tax amounts until September 2020 (that become owing between March 18, 2020 and August 31, 2020)—no interest or penalties will accumulate on these amounts during this time-frame (this applies to tax balances due as well as instalments)
- Expediting the tax filing process during the period of social distancing by having the CRA recognize electronic signatures effective immediately (a temporary administrative measure in order to reduce the necessity for taxpayers and tax preparers to meet in person)
- Allowing homeowners who are facing financial difficulties to defer mortgage payments on CMHC-insured mortgages (CMHC will permit lenders to allow payment deferral effective immediately)
- Providing eligible small business employers a temporary wage subsidy for a period of 3 months in order to help prevent lay-offs—the subsidy will be equal to 10% of remuneration paid during that period (up to a maximum subsidy of $1,375 per employee and $25,000 per employer)
Plus the provincial government will be offering further support to Ontario residents including:
- Sending out one-time payments to parents of children affected by school and daycare closures in the amount of $200 per child up to the age of 12 (or $250 if the child has special needs)
- Providing emergency child care options to support parents working on the frontlines—such as health care workers, police officers, firefighters, and correctional officers
- Expanding access to the emergency assistance program administered by Ontario Works to provide financial support to people facing economic hardship so they can meet basic needs such as food and rent during the pandemic
- Doubling Guaranteed Annual Income System payments for the next 6 months for low-income seniors
- Suspending Ontario Student Assistance Program (OSAP) loan repayments for the next 6 months
- Supporting more affordable electricity bills for eligible residential, farm, and small business consumers by providing approximately $5.6 billion for electricity cost relief programs in 2020/21
Keep in mind the above (proposed) initiatives are still in the process of being finalized. For the latest updates on federal initiatives, be sure to visit the special COVID-19 pages of the Government of Canada’s website—where you’ll find various resources, including full details on the GoC’s COVID-19 Economic Response Plan. For more information on provincial initiatives, visit the Ontario government’s online newsroom.
For the latest updates, be sure to visit the special COVID-19 pages of the Government of Canada’s website—where you’ll find various resources, including full details on the GoC’s COVID-19 Economic Response Plan.
For the latest news on the education front, be sure to refer to your affiliate/member website:
For up-to-date pension news:
Do you need assistance putting together your own COVID-19 financial action plan? We’re here to help.
Whether you’re looking for guidance on creating an emergency budget, require a low-rate line of credit to provide extra cash flow during these uncertain times, or have questions about current market conditions—call on Educators Financial Group. Since 1975, we’ve been helping education members navigate through many ups and downs. No matter where you are on the pay grid, or what your pension income is in retirement, we can provide you with sound, educator-specific advice to help ease your mind and reach your financial goals.
Have one of our financial specialists reach out to you.
Sources:
https://www.msn.com/en-ca/money/topstories/44percent-of-canadian-households-report-lost-work-amid-covid-19-pandemic-poll/ar-BB11FM41?li=AAggNb9
https://www.whichmortgage.ca/archived/almost-half-of-canadians-have-no-emergency-funds/252648
https://www.canada.ca/en/department-finance/news/2020/03/canadas-covid-19-economic-response-plan-support-for-canadians-and-businesses.html
https://nationalpost.com/pmn/news-pmn/canada-news-pmn/highlights-of-ontarios-covid-19-fiscal-plan
https://news.ontario.ca/mof/en/2020/3/ontarios-action-plan-responding-to-covid-19.html
