Financial Literacy

Emergency funds and budgeting: managing your finances during COVID-19

By: Zandile Chiwanza on March 20, 2020
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Covid-19 isn’t just coming for our physical health — it’s coming for our financial health, too. 

While there are programs the federal government has put in place through the COVID-19 Economic Response Plan that will be helpful to manage financial health amid the pandemic, such as the deferral of student loan payments, even if you're still able to work regular hours and have regular income it's normal to feel anxious about job security, how you’re going to make ends meet and your overall financial health. 

So I reached out to finance professionals for some steps take to better manage your finances while dealing with the challenges covid-19 brings.

Rearrange and reprioritize budgeting

“Take a look at all of your bank accounts (checking and savings) and see how much cash you actually have on hand right now,” said Jessica Moorhouse, a millennial money expert, and financial counselor.

“How long can you realistically survive on that amount based on your current expenses?” she asked. 

The next step is to take a look at your past month’s spending and see what you’re going to have to cut back on. Ask yourself what are some non-essentials that you can easily cut? 

For some, finding these savings may not be that hard right now. Thanks to social distancing, many of us are being forced to stay indoors, while most of the places we typically spend money on (restaurants and bars, for instance) are closed. Moorhouse also suggested hitting pause on some automatic savings contributions to things such as travel so you have enough to pay for essentials such as groceries. 

David O’Leary, the founder of Kind Wealth, has similar advice for a practical starting point. “Go back through your budget. If you've never created one, create one for the first time,” he said. 

“For everything on your list, prioritize what needs to be paid based on the most immediate needs.”

In light of the new normal, O’Leary said to focus on freezing unnecessary spending. If you've done a budget in the past, what might have seemed like a need a month ago may no longer be the case. 

Get your emergency funds together

In general, it’s recommended that you save the equivalent of three to six months of your regular expenses in an emergency fund. 

“Given the situation, I think it's important that people make sure that they have at least six months of emergency expenses set aside, preferably closer to 12 months,” said Darryl Brown, investment planner and founder of You&Yours Financial.

“Even if someone has at least six months set aside, I would say there's better value in continuing to build that emergency fund in case their employment is not secure in the future.”

It’s important this emergency fund is liquid and accessible. This doesn’t mean piling money under your mattress, it means having your savings in a high-interest saving account that you can cash out quickly, for example. 

“I don't think people should be hoarding the entire value of their TFSA in the attic somewhere,” Brown said. 

“But if somebody feels like they need to have an extra hundred dollars set aside that’s fine. I think people should do what they feel is necessary to give them comfort,” Brown said.

Worried about investments?

There’s been a lot of folks asking whether now is the right time to invest, considering the stock market plunged into bear market territory and stocks are cheaper than they would be under normal circumstances. 

“I don't think there's value in spending a lot of emotional energy on worrying about investments,” Brown said. 

“I think there's value in knowing there's money set aside, in case this disruption lasts longer than people are expecting.”

For those who are in the position where they may need to tap into their existing investments to survive the next couple of months, Brown urges people not to be ashamed of that.

“Don't feel any shame if you need to sell a small portion of your portfolio to reinforce your emergency fund or to give you some security. Focus on your own health, the wellbeing of your friends and family and your mental health, as opposed to wondering when you wake up is the market going to be up 10% or down 10%.”

Dealing with financial anxiety during the covid-19 outbreak is a new territory for everyone, even the pros. 

“I don't think panicking or reacting to the news is a helpful approach,” Brown said. 

“Focus on your own health and don’t pay attention to the day-to-day changes in the market.” 

Moorhouse added, “Everyone else is going through this exact same thing. It's not like you have to cut back and everyone else is just living their best lives going through this.  

“One thing I found really helpful is talking to other people. Set up a special messaging group with some friends and have a check-in partner. We're all in this together. We're supporting each other.”

Worried about making rent or paying your mortgage?

If you’ve lost your income, the government, through The Canada Mortgage and Housing Corporation (CMHC), is providing options for eligible homeowners to defer mortgage payments. These include payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and payment arrangements.

TD Bank announced on March 17, that six of the country’s largest financial institutions will be providing mortgage relief and financial aid to those impacted by the pandemic. 

O’Leary urges you to call your mortgage lender or your bank and start having these conversations as soon as possible.

While the government has not yet announced similar relief for renters, O’Leary said this is the time to talk to your landlord about your options. 

There might also be help coming from the federal government soon. Evan Siddall, the president and CEO of CMHC, tweeted this week that it’s something the government is looking at right now. "We are also exploring, with others, potential relief measures for those who cannot make payments on uninsured mortgages and renters.”

Ontario residents should also be aware that evictions have been put on hold in the province.