COVID-19: Time to Review the Health of Your Personal Finances

Slowing the spread of COVID-19 requires people to halt normal activities that churn the economy. This includes reducing unnecessary travel, cancelling sporting events and concerts, closing schools and essentially, maintaining social distance and personal hygiene. Governments require cooperation from everyday citizens to “flatten the transmission curve”.

For an undetermined period, we will not operate as normal globally, regionally and locally. Virtually everyone will feel the impact on their jobs and personal lives. It’s time to maintain calmness and take a good look at our personal finances.

EYEING ECONOMIC TRENDS

Stock markets across the world have plummeted and oil prices are hurtling to record lows. Some economists are expecting a short term recession, with a bounce-back near the end of the year. Federal, provincial and municipal levels of government are operating as an emergency and have pledged a “Team Canada” approach to fight the pandemic both medically and economically, freeing up millions of dollars in emergency funds to help Canadians. Individuals should listen to the announcements, follow public health guidelines and take advantage of any financial benefits that you qualify for. Indeed, if the forced halt in economic activities slows the spread of the virus, then our pain will be short-lived and life will return to normal, quickly.  Remember, that right now, it’s about reducing risk to what our healthcare system can manage.

WILL YOUR INCOME HOLD?

Prime Minister Justin Trudeau and Mayor John Tory of Toronto imposed self-quarantine procedures on themselves as exemplary role models for what we should all do if exposed to the virus. However, not everyone has the luxury to simply stay home.

A minimum wage worker at a Tim Hortons franchise cannot work from home; a receptionist at a private dental clinic may not get paid for a self-imposed quarantine; an ill freelance journalist may not be productive enough to earn a living, even if they can work from home.

Everyone needs to examine their personal situation to see how your income might hold through various scenarios of COVID-19.  Will you get paid for self-quarantine because a family member has fallen ill? What happens to your paycheque if your employer or a medical professional imposes a 14-day quarantine? Will your finances hold if you catch the virus and need time off beyond the quarantine period to recover? Will you manage financially if you need to stay home to care for a child or seriously ill loved one?

EMPLOYMENT BENEFIT PROGRAMS

This is hardly the time to turn to Facebook for answers. Employees with questions should begin a direct dialogue with their employer about income in all the situations described above so you can prepare.

Some employers offer Paid Emergency Leave as part of their normal benefits package. This will allow employees to ride out all the above scenarios unscathed and with full pay. Other forward-thinking employers are proactively financing payroll in the event of a COVID-19 quarantine and illness. Google employees, for example, already receive excellent emergency and sick leave benefits; however, Google has now introduced a fund to extend this coverage to their contract workers.

If you have contributed Employment Insurance (“EI”) premiums through monthly payroll deductions, and have enough insurable hours accumulated, then you might qualify for the Federal Government’s Sick Leave program, which will cover a portion of your income during a COVID-19 quarantine or illness.

The trajectory of the virus remains a mystery, as does the full economic impact of the pandemic. However, knowing such facts in advance about your income flow, directly from your employer, will allow you to prepare for it financially.

RIDING OUT COVID-19 WITH NO FINANCIAL COVERAGE

The group that stands to be most affected economically during the COVID-19 pandemic includes individuals without private coverage, who also do not qualify for the Federal EI sick benefits program. This includes thousands of contract workers, freelancers, independent consultants and small business operators. Some on the front line are already feeling the brunt of reduced economic activity, like caterers and event managers, who have lost income because of cancelled events.

If your COVID-19 reality includes unpaid time off or reduced income, here are some steps you can take to cope financially over the next little while:

  • WATCH YOUR SPENDING – It goes without saying that when your income is threatened, you should make precise and surgical cuts to your spending. Eliminate discretionary spending, like eating out and vacations as the first step, and supplement this with mindful spending. Stockpiling on toilet roll supply for long periods should not be your priority. You will want to make food, rent or mortgage and other necessary expenses your priority, especially if you expect the next few months to be rough on your income.
  • EMERGENCY FUND – Financial advisors consistently remind everyone to hold three months’ wages in a safe investment vehicle like government bonds or a savings account. Entrepreneurs should hold at least six months’ worth of savings because they may not receive sick leave benefits. The COVID-19 pandemic is a good enough reason to tap into this fund. Use this money in lieu of a paycheque while maintaining tight control over your spending.
  • FAMILY & FRIENDS – If you did not prepare an emergency fund, then reaching out to your family and closest friends for financial help is the next step. This will be a simpler task for some people compared to others. Remember that COVID-19 is unprecedented for the times. Nobody should judge you for needing financial help if your income is impacted by the pandemic. Explain your reason and set out clear repayment terms. Accept financial help graciously and prepare just as cordially to hear a “No.”
  • SECURED LINE OF CREDIT – Anyone without a buffer of personal funds should seek out a secured line of credit as the next step to carry them through a financial crunch. To obtain this, you will have to pledge your car or home as collateral to a bank to access funds. Shop around for the best interest rates to obtain a line of credit equivalent to at least three to six months’ salary. Hopefully, you will not be impacted by COVID-19, and if so, you will not incur interest charges on the line of credit. These funds represent the lowest interest loans in the event you need to borrow money to pay yourself until your normal income resumes.
  • BANK OVERDRAFTS – If you do not have assets to obtain secured loans, then your bank may offer overdraft protection. This will allow you to draw funds beyond your bank balance, but it will trigger an overdraft or NSF (Not Sufficient Funds) fee. Ensure you understand the terms and fine print because the fees vary between banking institutions.
  • CREDIT CARD DEBT & PAYDAY LOANS – The riskiest financing, and often the most accessible, are credit card and payday loans, which remain unsecured debts with the highest interest rates in the lending industry. They can be a convenient source to cover short-term cash flow problems when you have no other choice. If you are forced to take a 14-day COVID-19 quarantine without pay but feel reasonably comfortable about your pay resuming shortly after, then you can carry a credit card balance as a stopgap. Both payday loans and credit card balances impact your credit score and can quickly spiral into unmanageable debt if you do not pay them off quickly.

If you would like to discuss your finances in further detail, please feel free to contact the author.

Connect with the Author

Linda Stern is a Senior Manager and Licensed Insolvency Trustee at Crowe Soberman Inc. She has over twenty-five years of experience working in Montreal, Ottawa and Toronto, primarily in consumer insolvency matters consulting with individuals overwhelmed with debt and helping them find solutions that work best for their financial and personal situations. If you are concerned about your finances during the pandemic, call her for a free telephone consultation.

T: 1.416.644.4692
E: linda.stern@crowesoberman.com

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