5 tips to survive the COVID-19 financial crisisOct 14, 2020
For many Canadians, the COVID-19 financial crisis is pushing them further into financial difficulty. Millions have lost their jobs and are struggling to return to work. But their burden is not only financial; it’s emotional too. As friends and families are still socially distancing, it’s harder than ever to confide in others, get advice, and find new ways of coping.
Dealing with a financial crisis is hard enough. When you add in the isolation of COVID-19, it can be harder still.
To understand the effect of the pandemic on Canadians’ finances, we can turn to the newly released BDO Affordability Index. The new survey shows that the financial outlook of Canadians is actually quite varied. While many people’s finances are doing worse (39 per cent), there are many who are unaffected (43 per cent) and some who are even doing better (18 per cent) than before the pandemic began.
For the people who were able to continue working throughout the pandemic, they likely saw an increase in savings. Canadians attributed cutting back on expenses as a major reason why they were able to save. Working from home helped people dramatically reduce spending on commuting and food expenses. And the vast majority of people (76 per cent) decreased their non-essential spending.
But the real worry is that a significant portion of Canadians are more vulnerable now than before. COVID-19 has intensified economic disparities and is widening the affordability gap.
What does the COVID-19 financial crisis look like for Canadians?
The majority of people (67 per cent) who are worse off have experienced an interruption in their pay, whether it’s through reduced hours or temporary or permanent layoffs. Here’s a closer look.
Less financially resilient
Living paycheque to paycheque is a common indicator of financial stress. It’s a sign that people are unprepared for an emergency, aren’t able to save, and are more likely to resort to credit. This year, many people are stretched even further, having to make do with reduced pay or government benefits like CERB or EI.
Increase in debt
With reduced salaries, increased financial obligations can weigh heavily. For people whose income isn’t enough to cover their living expenses, they may feel compelled to borrow from lines of credit or even their credit cards.
If you identify with any of these financial difficulties or are worried about the uncertainty of the economy and how it may evolve, here are some steps you should be taking.
How to survive the COVID-19 financial crisis?
1. Cut down on non-essential spending.
The fact that non-essential spending is down in a dramatic way is a sign that many Canadians are already changing their spending habits and adapting to a period of economic uncertainty. No one knows how the COVID-19 crisis will evolve and how deep the financial crisis will be. So be frugal. Create a budget and decide in advance how much you can spend on things like takeout meals, recreation, clothes, and so on. Spending money on non-essentials should be kept to a minimum. If you are eager to make improvements around the house, keep projects small, and stick to your budget.
2. Build an emergency fund.
If the COVID-19 financial crisis has taught us anything about money, it’s that we should always prepare for the unexpected. The BDO Affordability Index shows that a majority of people (51%) believe that having an emergency fund is more important now than ever before. Strive for three months of living expenses and make sure to keep your emergency funds in cash, in a separate account.
3. Reduce debt.
If bolstering your emergency funds is a great way to weather the affordability crisis, so is reducing debt. Less debt can create more wiggle room in your budget, should you need it. Always focus your attention on high-interest debt like credit card bills first. If an emergency arises, being able to rely on savings as well as a low-interest line of credit can be an important safety net.
If debt has become overwhelming due to the pandemic, as it has for almost a quarter of Canadians (23%), you may need to speak with a Licensed Insolvency Trustee who can help you understand the different types of debt relief strategies that are available to you, like debt consolidation, a consumer proposal or bankruptcy.
4. Downsize expenses.
If you’ve already tried cutting back on your non-essential spending, saved and reduced as much debt as possible, you might be wondering what to do next. Consider downsizing. Downsizing isn’t just for empty-nesters. Everyone can do it. From phone bills to rent, there may still be expenses you can cut back on. In big cities, for example, many young people employed in the services industry have moved back home with their parents to save on rent. The same concept applies to other lifestyle choices, like choosing to live alone or owning a second vehicle. Downsizing is performing a full assessment of what you may consider to be essential spending. Making some important sacrifices can go a long way in improving your financial outlook.
5. Be proactive.
It’s important to remember that the COVID-19 financial crisis is far from over. These findings are but a snapshot of the affordability challenges Canadians face at a very specific time in the crisis. Creating a budget for the next few months and continually looking ahead for any roadblocks is a necessary step for all Canadians, even if you haven’t lost your job or been financially impacted by the pandemic.
Having a budget is all about juggling different responsibilities. If you feel like you’re not going to catch everything, take a step back, pause, and find out how you can simplify your obligations. This will mean facing your money challenges head-on. You may need to make some calls to your creditors, seek advice, and admit you need some help.
A lot of the stress and anxiety people feel about money comes from not knowing what to do and feeling too ashamed to talk about it. In most cases, knowing really is half the battle.
Are you unsure about what to do about your finances? Talking to a Licensed Insolvency Trustee can be a big source of comfort. Your story is more than your debt. Book a free, no obligation consultation to learn more about your options.