Dear clients and readers,
I hope you are staying healthy. Resilience is the common ingredient that will ensure our collective health and financial recovery from COVID-19. Today’s message provides key highlights of the new Canadian financial aid package as well as how to effectively budget for essentials.
- The federal financial aid package was approved last week.
- The Canada Emergency Response Benefit (CERB) has replaced the Emergency Care Benefit and Emergency Support Benefit and maxes out at $2,000 per month for individuals and small businesses. Note that EI is the benefit most traditionally employed Canadians should qualify for if they experience job loss. See our previous message HERE for details.
- Individuals and small businesses can start applying for support payments later this week through CRA My Account, My Service Canada Account and My Business Account.
- Once approved, money will be issued within 10 days. Ensure your banking information is correct on your profile.
- Late last week small businesses saw a major boost in support; the Government of Canada will cover up to 75 percent of payrolls, back interest-free loans up to $40,000 and waive GST remittances until June 2020.
- Everyone has temporary relief from paying taxes; individuals must file by June 1st and pay by September 2020; and businesses also receive an extension for taxes owed until September 2020.
- 70 percent of individuals will receive a tax refund, so a delay in filing could postpone receiving this money. Call the CRA at 1-800-959-8281 for personal inquiries.
- For the value investors, the general consensus is that we are going to see a yo-yo effect in the market for the next little while because the Coronavirus is largely unanalyzable from a financial perspective. The good news is that the investment community generally agrees that the market is not going to go to zero, and that there are still excellent quality investments out there (including ETFs) that will allow you to ride the rebound, whenever that happens. Further down in my note you will see that jumping into the market is not a suitable strategy for those who do not have a sufficient emergency cushion.
Tips to budget for essentials only
Rent, mortgage, utilities, groceries, supplies for your kids, medication and a basic cellphone package. These are essential expenses to get us through COVID-19. Everything else we used to spend money on can — and probably should — be deprioritized from our budgets. Non-essentials include clothing, makeup, video games, gym memberships (which are all closed anyway), pizza nights and more.
Statistically speaking, we know that non-essentials comprise about 25 percent of the average Canadian household’s take-home income. This savings, if you’re still working, could go toward shoring up your emergency cushion. If you’re not working and will be collecting government benefits (which max out at about $2,000 per month), these cutbacks will help balance your budget, and hopefully keep you out of unnecessary debt.
Living lean won’t be forever, but during these trying financial times, it’s simply prudent to protect your precious resources. Here are a few tips to help you prioritize and trim your budget.
Be a ruthless budgeter
If you weren’t a budgeter before, you need to become one. You simply can’t afford not to have a clear plan for spending right now. Total up your income, then list and total your essential expenses. Any money left over after paying essential expenses can be put toward an emergency cushion in case you lose your job. If you’re negative — perhaps you’ve lost your job — you need to renegotiate your essential expenses by calling your mortgage company, telecom and utilities providers.
Track your digital dollars carefully
Given that we’re using online shopping to get what most of us need, you’ll want to track credit and debit card transactions, e-transfers and your PayPal account. Reconcile your digital spending on a weekly basis to ensure you’re keeping on track with your budget and haven’t fallen victim to fraud. If you find yourself spending on non-essentials, you should return what you can of those items.
Meet or negotiate your credit obligations
Most Canadians make payments on a combination of debts; mortgages, car leases, lines of credit, credit card balances, store credit and more. In the majority of cases, the interest component on these debts is an essential payment. If you are unable to meet these obligations, you need to call each lender and have a conversation about deferring payments, reducing the payments and interest rate, and returning goods you can do without (if applicable). Yes, this might mean turning in your leased vehicle. Whatever you do, don’t get upsold into spending more during your phone call!
Streaming the latest episode of “Jack Ryan” isn’t essential. But, I get it. We’re on quarantine and bored. If you really feel like you can’t survive without your entertainment subscriptions, you can still save money by reducing your subscriptions to just one music and one streaming site. Cut the rest. And if you’re a reader, join your local library because they all have free eBooks and audiobooks that you can “rent” on your digital library card.
Emergency cushion first, then retirement savings
It’s a field day for value investors who are trying to jump into the markets and buy investments for their retirement portfolios at a discount. But this strategy isn’t suitable for people who are without an emergency cushion. Once you’ve got three months of your household expenses set aside, then return to saving for retirement as an essential part of your budget.
Boredom is very bad for your bank account
Have structure to your day. Don’t sit around online shopping or go to the store when you don’t have to; you put everyone at risk and it’s bad for your bank account. Learn new things (download a free language app). Enjoy the free data overage allowances that the telecoms are offering and connect with your friends and family. Do free at-home workouts. Structure is also good for your mental health.
Whether you’re managing your household budget or desperately trying to keep your business afloat, follow this prudent principle; essential expenses are things you, and your business, literally can’t live without. If you’re remotely on the fence about a cost, it’s probably non-essential.
Last week on Breakfast Television Vancouver, we took a deeper dive into these budgeting tips. Click here to watch our tips.
I will continue to be in touch weekly with key highlights for your finances amidst the COVID-19 crisis. In the meantime, please don’t hesitate to contact me with any questions email@example.com
Missed our last email? Click here to read our individual & small business financial tips during this period of uncertainty.