Affected financially by COVID-19? A personal finance expert answers your most pressing questions

If you’ve been laid off and are wondering how to juggle rent and bills, have seen your income drop and are worried about your finances, or are worried about your financial security in these uncertain times, know that you are not alone. .

In just a matter of weeks, the impact of the COVID-19 pandemic on the finances of Canadians has been rapid and unprecedented. Over a million people have already applied for Employment Insurance (EI) benefits, and the government expects four million candidates for his news Canadian Emergency Response Benefit (CERB).

To get answers to some of your most pressing personal finance questions related to COVID-19, we spoke to Shannon Lee Simmons, Chartered Financial Planner (CFP), Chartered Investment Manager (CIM) and Founder of Financial Planning Consulting Firm The new school of finance. Here is his advice on how to cope with a financial emergency and suggestions on how to tackle issues like cash flow, mortgage deferral, and retirement investments now.

Note: This is a rapidly changing situation. Government programs and the specific benefits of COVID-19 may change in the coming weeks; refer to official websites for the most recent program details and eligibility guidelines.

What is a financial emergency?

According to Simmons, there are two types of emergencies that can negatively affect your finances: when you have a big contingency, expenses that arise (like a leaky roof that needs repairs) or when income is unexpectedly cut. With the COVID-19 crisis, many people are experiencing or worrying about this latter scenario. “An unexpected layoff, or a massive drop in sales if you are self-employed, would be an emergency. [because] the revenue tap was turned off, ”says Simmons.

What steps can I take if I am experiencing a financial emergency related to COVID-19?

First, close the gap between your income and your expenses. “You want to close that gap as quickly as possible,” says Simmons.

If your earnings have been disrupted or you’ve been laid off, start by determining whether you qualify for regular EI benefits or other government programs like ECPs. “Your future cash flow is your greatest asset and your best friend right now,” advises Simmons. She notes that many government initiatives related to COVID-19, including the PCU and the wage subsidy program, are still being deployed, and it may take some time to access support and receive funds.

Once you know what to expect from these programs and / or regular sources of income, find out where you can cut back on your spending. “In an emergency, you can reduce expenses in a way that may not be sustainable in the long run,” says Simmons. “I’m generally really against spending cuts because, like a crash diet, it’s not sustainable; I think it sets a lot of people up… and it adds to this cycle of guilt.” But during a financial crisis, Simmons suggests taking things like subscriptions to cut back on your monthly expenses and diverting budgeted money for things that are on hold, like child care costs and extracurricular activities for the kids. “All that money that came out the door every month is gone now… that should give you some breathing space, so that the money that comes in can be used to pay bills, to keep a roof over your head.” your head and buy groceries, ”says Simmons.

If I am still working but worried about my future income, what preventative actions can I take?

Use all the money that has been released to pay off the debt, suggests Simmons. “If you have a little debt, whether it’s credit cards or a line of credit, pay the money now to [it] so that if you have an income disruption down the road, you wouldn’t have to make those minimum payments every month, ”says Simmons. “In addition, you save interest on [the debt]. ”

If you don’t have any debt, Simmons suggests starting to build an emergency fund that covers your expenses and bills for at least a month. “Ideally, we want to save three to six months of emergency cash, but that’s not practical for a lot of people,” says Simmons. “In an emergency, the goal is at least one month [of expenses]. ”

Interest rates are ultra low at present. Should I try to renegotiate the debt?

Now is absolutely a good time to talk to your mortgage broker, says Simmons. If you have a mortgage with a higher interest rate, for example, they can help you calculate what the potential savings (and penalties) might be if you renew your mortgage sooner. Simmons adds that depending on your specific situation, you may want to talk to your broker about whether you should break your mortgage to convert a credit card or other more expensive debt into a new loan at a rate of. lower interest; the broker can tell you all the costs involved and what your monthly payment would be. “They can work out the numbers and let you know if it’s worth it or not,” says Simmons. “If you have the option of getting into debt at a lower interest rate, it is still good financial planning practice to follow.”

Who should benefit from the mortgage deferral program?

Simmons recommends deferring the mortgage only in the most serious circumstances: “If you’ve lost your source of income and the EI programs come in, whether it’s regular EI or the Canada Emergency Benefit, are not enough to pay your mortgage, bills, groceries and living expenses. “If a deferral saves you from getting an expensive credit card or line of credit , this could be a good option that can help you “breathe a little easier,” says Simmons.

But if your current income (even if it’s reduced) is enough to cover your most basic expenses, Simmons recommends that you don’t defer mortgage payments because, as she puts it, you would “just finance debt with debt.” . You are unable to make payments during this period of time; these skipped payments and the interest you owe the bank will be added to your mortgage. “As mortgage deferral programs have been described, banks [would be] basically by lending you that money, ”says Simmons. “It’s basically compound interest, you pay interest on the interest you already owe,” she explains.

Should I be concerned about my investment and retirement accounts?

If you are currently in a situation where the market value of your investments has dropped significantly, but you need to withdraw a significant portion of the money, Simmons says a strategy for retirees is to accept payments from registered funds from retirement income (RRIF) for the year monthly, instead of a single annual payment. “With a bit of luck [then] you minimize the damage, or at least diversify what the potential market does over the course of a year, ”says Simmons. “By taking the targeted annual payment and spreading it out over smaller, more progressive monthly withdrawals, we can use this strategy of averaging dollar costs… and try to smooth out the losses. (She also notes that for 2020, the government is reducing minimum RRIF withdrawals 25 percent.)

Ideally, anyone who is retired or planning to retire soon would have at least one year to 18 months of living expenses sitting in a money-like product like a GIC, suggests Simmons. “Then if there’s a stock market crash… you don’t need to take any money out while your investments are low, and you can relax and wait for things to correct themselves,” says Simmons. “In the future, this is good practice for everyone.”

Simmons advises against taking extreme measures right now when it comes to your investments. “The goal for everyone should be not to panic, as hard as that may be to do,” says Simmons. “I think staying the course on the plan you have going on is the smartest and calmest thing to do right now.” And, if you can, avoid looking at your statements or investing applications just yet; it is unproductive and can create anxiety. “Unless you intend to do something about it, this is unnecessary information,” says Simmons. “It doesn’t even mean anything; [the numbers] could change tomorrow. ”

Truc Nguyen is a Toronto-based writer, editor and stylist. Follow her on @trucnguyen.

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