Finance Expert Melissa Leong: Budgeting For a Pandemic
Around the time when people were stockpiling toilet paper, my husband and I were saving another kind of paper — money.
Both self-employed, we felt like we needed to be financially prepared amid the uncertainty brought on by the coronavirus pandemic — to be honest, we should have stockpiled both because now we’d really appreciate if anyone could spare a square.
Given what is happening in the world, we’re all legitimately worried about not only our physical health, but our financial health. While we cannot control how things unfold, we can control how we respond. Here are some things you can do to help prepare your finances for the pandemic and a global recession.
You need to understand where you stand right now in terms of your finances. What are your expenses? Go through your bank statements and determine your needs, your fixed expenses, etc. Some of your spending will likely be lower (in areas such as restaurants, entertainment, etc.). Figure out how much you/and your family will need every month going forward.
Cut Where You Can
As you go through your statements, ask yourself, what can you do without? Consider your monthly memberships, subscriptions, etc. Call companies to reduce your bills. Maybe your telecom company has a cheaper cellphone package for you. Maybe your car insurance company will lower your premiums if you’re not commuting to work every day.
How can the pandemic affect your income? What is the risk of losing your job? Could your hours be reduced or business slow down? If you’re a landlord, how long could you carry a vacancy? Assess the risk to your finances.
Build Up Your Emergency Fund
Even if it’s just a small amount, start putting money aside in a high-interest savings account. You want this money to be easily accessible to cover any unexpected expenses or lost wages, etc. Even though I am an optimist, my husband and I have had many discussions about worst-case scenarios when it comes to our income and how many months-worth of expenses we may need. For you, that figure might be three-months worth, six, or more.
Our governments have unveiled measures to help support you financially in these times. Make sure you take the time to explore the options available to you and that you understand how to access them.
For example, the federal government has waived the one-week waiting period for Employment Insurance. For those who don’t qualify for EI, the government has introduced an “Emergency Care Benefit” which provides up to $900 bi-weekly for up to 15 weeks (applications are available in April).
For students, there will be a six-month, interest-free moratorium on the repayment of Canada Student Loans. For retirees, the required minimum withdrawals from RRIFs will be reduced by 25%. The six big banks (Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank, and TD Bank) have announced that they will be working with individuals and small businesses on a case-by-case basis to help them through this time, including allowing people to defer mortgage payments for up to six months. Call your lenders and discuss the possibility of deferring payments or lowering interest payments for a time. If you call your banks, mortgage providers, lenders, etc., be prepared for a wait though.
Consider a Plan B for Income
We humans are creative and innovative. This may be your opportunity to explore other areas of your business to access another stream of revenue. Also, is there a way for you to expand your business from home? If you are a therapist, can you connect with clients virtually? If you’re a freelancer, can you sign up with an online platform that would market your services globally? Are you an industry expert that could develop online workshops?
Breathe and Invoke Calm When facing the Markets
With the extreme volatility that we’ve seen in the past month on global stock markets, any investor would be feeling staggered. But if you feel panic from seeing the value of your portfolio drop, walk away for a moment. Create a plan going-forward, especially if you don’t already have one for your investments; that plan might include doing nothing.
If you’ve diversified your account, you’ve got the right mix based on your risk tolerance, your goals, and your time horizon — it’s likely that the best thing you can do right now is to just stay the course. If you’re wondering if this is a good time to get into the market, ask yourself: what is your goal? If it’s to make a quick buck, then use caution. No one can predict the bottom and it’s likely that you stand to lose money before you gain. If you’re looking to invest for your future, identify quality companies or consider buying a fund of leading businesses and don’t worry about trying to find the “right” time; consider wading in a little at a time.
We’ll get through this together. All we can do is sit tight and do what we can to protect our finances and each other.
Melissa Leong is one of Canada’s best-loved authorities on personal finance. Currently the resident money expert on CTV’s The Social, Canada’s leading daytime talk show, Leong’s goal is to help people better manage their money while maximizing their happiness. She is the bestselling author of the award-winning, feel-good finance guide Happy Go Money.