With the arrival of the novel coronavirus, we are living in unprecedented financial times. It’s completely normal to feel overwhelmed, scared and anxious.
The good news is, there’s actually a lot you can do to take back control. You may have more options than you realize.
Here are some suggestions to consider for your finances right now, along with some basic guidelines to help future-proof your money.
Top 10 priorities right now
Now is the time to cut spending to the bone in order to free up cash. Be rigorous in eliminating or reducing spending on everything that isn’t absolutely necessary.
2. Tap into your emergency fund.
This is what it’s for! If you don’t have one, don’t beat yourself up. Take this as a learning experience. Once things stabilize, start building or replenishing your reserves.
If you own your home and are 55 or older, you could explore a reverse mortgage. It allows you to access a considerable percentage of the equity in your home while deferring payments until you move out, sell your property or pass away. As a bonus, it’s not taxable nor does it affect social security benefits like OAS and GIS. However, rates are higher than a traditional mortgage and the longer you have it, the more interest will accrue (that said, there are options to limit the accrual of interest). This means you could receive less equity from the sale of your home in the future, depending on how home prices fluctuate. Therefore, it should be considered carefully. A licensed mortgage broker can assess eligibility and help you make the right decision.
3. Maintain your monthly debt repayments.
It’s important to pay the minimum on your credit card and loans by the due date to avoid triggering higher interest rates and/or negatively affecting your credit score. If you can pay more, it’s always a good idea to knock down interest.
4. Contact your bank and creditors to review options regarding debts.
Creditors are open to working with you during difficult times because they’d rather receive some payment than none. Everything from mortgages to student loans to credit cards is on the table. Be sure you understand how these actions might affect your overall interest payable, future rates, loan length and if there any applicable fees.
Another option to access tax-free funds is a CSV Line of Credit. This product is a revolving line of credit secured against the cash surrender value of your whole life insurance policy. Rates are typically lower than that of a HELOC and you can choose your payment schedule including a no payment option (for borrowers age 50 and up). You should be aware that interest will be added to your loan amount which will reduce the death benefit payable. This product should also be considered carefully. A licensed insurance advisor can help you decide if it’s right for you.
A variety of insurance products pay out benefits in the case of income loss due to job loss, injury, or illness.
Credit card balance insurance protection may pay your minimum monthly payments or the full balance, depending on the terms in your policy. Optional mortgage insurance (not to be confused with mandatory mortgage default insurance if your down payment is less than 20%) may take care of your mortgage payments, while job loss insurance pays your debts for a specified time if you lose your job.
If you’re employed, it’s a good idea to check your company benefits. If you have lost your job yet have a spouse who is still employed, now is the time to sign up for their benefits plan.
You could be eligible for EI or other social security benefits. In the case of COVID-19, the federal government has just announced an $82 billion dollar emergency package that provides unprecedented financial help for Canadians.
7. Pause regular contributions.
If you have been making regular contributions towards retirement, it is absolutely okay to halt these temporarily in order to increase your savings.
8. File your taxes.
If you are expecting a refund on your taxes, file your return early so you can receive your payment sooner rather than later.
The government may also need to see your income from last year in order to assess your eligibility for social payments.
9. Generate additional funds.
If you are short on funds, consider how you could create income. Can you move in with family temporarily, sell old items or pursue contract/freelance work?
If you need cash, do you have access to a line of credit? These products typically have much lower interest rates than credit cards. Consider approaching family or trusted friends for a loan very carefully. At all costs, avoid instant ‘payday’ type loans as their interest rates are the highest in the market.
If you have accumulated a lot of loyalty or credit card points you could also consider redeeming some to buy gift cards in a pinch.
It can be a scary time to be in the stock market because the volatility is so strong. Here’s some good news; when you examine the market over decades, even big corrections even out and produce positive returns overall. This has proven to be true for well over a century.
Should you sell now and buy again once things recover? Historically the evidence shows it’s best to stay invested because the stock market is a leading indicator. It usually recovers before the economy does, which means it’s nearly impossible to predict the bottom. It may be best to just stay the course and not follow the movements too closely. Try not to make long term decisions based on current fear or panic.
Should you invest more because stocks have dropped? This is a highly personal decision depending on your financial situation, comfort with risk, and timeline. If the thought of buying now makes you queasy, you absolutely don’t have to do it! Your emotional health is just as, if not more, important than your financial health.
What can we learn for the future?
Times like this inevitably bring about self-reflection and perhaps a desire to make some financial changes. As a golden rule, the three most important things to adopt as a lifestyle are:
– Prioritize paying off high interest debt first
– Save more – ensure you have an emergency cushion (ideally 3-6 months of living expenses)
– Invest for the long term – expect volatility over decades and stay the course in a low fee, diversified portfolio
This is a challenging time for all of us. I hope that these suggestions will help to put your mind at ease knowing you are doing all that you can. My best wishes are with you.
The views and opinions expressed in this column are those of the contributor and do not necessarily reflect those of Equitable Bank. Any information provided is for information purposes only and Equitable Bank makes no representations as to the validity, accuracy, completeness or suitability of any content. You should seek the advice of a qualified professional or undertake your own research before making financial decisions.