As the economic impact of COVID-19 touches every corner of daily life, we know your financial situation can change on a dime. We’ve gathered information and strategies to help address a few of today’s most pressing money needs and how you can sustain financial security through this crisis.
Here are some guidelines if you need to:
- Budget better
- Cut expenses
- Draw on savings
- Manage your credit card better
- Use a line of credit
- Defer your mortgage
- Protect your retirement assets
- Apply for financial assistance
With unpredictable incomes, make a money-saving budget
Whether you’ve been hit with a drop in income or just want to be better prepared to face ongoing uncertainties, creating a short-term plan to live on a reduced budget can stabilize finances until things become clearer over the next few months.
Calculate your essential expenses. List recurring expenses e.g. rent, utilities, insurance, etc. to prioritize what’s essential, and match each item to your salary, savings, other income (like rental) or government-provided COVID-19 financial assistance over the next three months. With this budget check, you’re making sure you have the income to cover these essential fixed costs.
Reduce services or defer payments, if possible. If you foresee any shortfalls after calculating the cost of your essential expenses, many service providers and utilities such as BC Hydro are allowing for flexible payment terms or offering financial relief to customers affected by COVID-19—provided you make arrangements in advance. Similarly, be proactive with landlords or lenders, who may be willing to organize a new payment plan with you.
Trim discretionary purchases that you may want, but don’t need now. While your Internet connection may be a lifeline right now, you might quit less-needed services that can be paused or down-graded. There are helpful apps to help you review and cancel unused subscriptions, aiming to eliminate services that automatically renew, gym memberships or recurring fees charged to your account. Take heart that, with salons closed, DIY #coronahaircuts are now fashionable.
KEEP IN MIND. Scaling back should still allow a few dollars for something enjoyable and important to you and your family during these difficult times.
If you need to cut expenses: keep your insurance protection
Paying for something you hope never to use may seem needless in lean times, but home or auto insurance premiums make up an important part of your financial safety net.
Stay protected at home. Keep paying the premiums on your tenant or homeowner insurance. The last thing you need in this economy is an unexpected loss due to fire or flood. Most insurers are allowing payment deferrals, premium adjustments, or waiving late fees, but you have to ask first.
Switch payment terms to monthly. If it’s time to renew your ICBC car insurance, switching to monthly payments can be more manageable than quarterly or annual premiums. Its customers may also apply online to defer payment for up to 90 days IF the account is up to date—don’t miss a payment!
Adjust policies to new habits. Driving habits are changing, at least temporarily, as we stay home. You may be able to lower your premium by reducing coverage. If your car is no longer being used, you can opt for less expensive insurance to protect a Vehicle in Storage.
If you need to draw on savings: take a measured approach
Many Canadians will draw on their savings as the COVID-19 crisis unfolds. Yes, these are days that “emergency funds” were made for. Even if you don’t have an emergency fund, there are ways to help you best dip into any savings to help you stay afloat.
Prioritize. Start with low-interest savings from your bank account first, term deposits next, then savings in your TFSA.
Keep RRSP funds as a last resort. Delay depleting any registered retirement savings plans as long as possible to protect long-term savings. You’ll also have to pay income tax on the RRSPs when cashed.
Don’t panic and cash out on investments. Even if investments have lost value through this downturn, equities and stock markets may yet rebound over time. The outlook changes every day, and a rushed decision may be regretted later.
If you need to rely on credit cards: be rate-savvy
Switch to a lower-rate option. Talk to your credit card provider to ask about a lower interest card and transfer any balance. Use the cards with the lowest-interest rates first.
Keep up repayments. If you’re unable to repay a balance in full and to keep your credit history in good shape, try to make the minimum monthly amount as indicated on your statement. If you are a Vancity enviroVisa card holder, you can ask for six months of payment deferrals to accrue interest into the future.
Avoid maxing-out credit. If you do find yourself reliant on credit cards for a short time, spread your purchases around to try and stay under 70% of the credit limit on any card. This will help your credit score, which is key to safeguarding, even during these trying times.
KEEP IN MIND: In a pinch, redeem credit points towards repayments or for cash.
If you need to tap a credit line: stick to good credit habits
A line of credit allows you to borrow money from a lender, up to a pre-approved amount based on your financial circumstances—providing the advantage of cash when you need it. Just know that how you use a line of credit can help build and maintain a good (or bad) credit rating, which again, is a critically important part of your financial health.
Avoid “spending” all your credit. Should you have a line of credit, utilizing it to the limit may not reflect well on your credit history, and may also trigger higher interest rates. It’s generally better for your credit report if, just like on your credit cards, you use less than 70% of your available credit.
Repay small amounts regularly. The habit of paying down a credit line—even a few dollars each month—will help your credit report, even if you run your credit back up again.
If you need to defer a mortgage payment: secure arrangements first
Most financial institutions are offering relief to Canadian homeowners impacted by COVID-19. If you’re concerned you’ll miss a mortgage payment, it’s important to contact your lender ahead of time.
Vancity introduced a loan deferral program (up to six months) for mortgages (and other loans) to support its members facing financial uncertainty and vulnerability due to the virus.
Reduce your monthly payment. You may be able to lower your monthly mortgage expenses by increasing your amortization, or it may be possible to arrange for interest-only payments and defer principal to a later date. Again, talk to your lender about your options.
If you need to protect retirement assets: adjust RRIF withdrawals
The Canadian government has offered temporary relief to ease the economic impact of COVID-19 on seniors age 71 and older who are forced to withdraw their savings from a Registered Retirement Income Fund (RRIF) as taxable income. The idea is to help retirees, who rely on their investments for income, during a time when markets are down – by increasing what they can “withdraw” without paying tax on it.
Minimum withdrawals reduced by 25%. For 2020, seniors have the flexibility to reduce their minimum RRIF withdrawals by 25% —so they don’t have to liquidate as much of these registered savings while markets are down.
KEEP IN MIND: Vancity Members can request a 25% reduction to their 2020 RRIF minimum payment by contacting Vancity and updating their 2020 RRIF payment information.
If you need to apply for financial assistance: understand your options
With all the different support programs being offered by the government and through financial institutions, it can be overwhelming to figure out what you should apply for. That’s why we’ve developed a decision map for you to easily figure out which programs are most relevant to your individual situation. Understand your options.
Stay in touch as needs change and finances recover
There is no easy way to get through difficult financial times, with everyone feeling the social and economic brunt of COVID-19 to various degrees. Vancity created a CommUNITY page to help its members and British Columbians learn more about available financial and well-being support, as well as how we can take care of our community.
Helpful links and resources for British Columbians
Aid and help are growing and changing so it’s important to check these pages regularly.
- The CommUNITY Centre (COVID-19 resources for Vancity members and British Columbians)
- Government of British Columbia COVID-19 Financial Assistance
- Government of Canada COVID-19 Financial Assistance
- Apply for CERB Financial Assistance
- Apply for Employment Insurance
- Apply for Temporary Rental Supplement
- BC Hydro COVID-19 Relief Fund
- Child and family benefits calculator
This article is part of a Vancity series to help breakdown and explain how COVID-19 economic stimulus measures can support individuals and families, businesses, and investors endure and thrive during these difficult times.
- COVID-19 Economic stimulus package for families and individuals
- What COVID-19 economic aid means for your business