A friend of mine frequently recounts one of Mike Tyson's most memorable quotes: "Everybody has a plan until they get punched in the mouth."
Tyson, often considered one of the greats in boxing history, was giving his perspective on how his opponent's plan of attack could easily go off the rails with one simple punch. The same is true in many aspects of life. We've all been thrown a big punch by COVID-19, only it feels like more of a "one-two combination" as we have to worry not only about the health impact but also the financial fallout.
It's important to avoid making rush decisions until we take a minute to retreat to our corner, gather our composure and come up with a new plan.
For questions on health and other areas of life, the Federal Government's main COVID-19 information page contains a lot of information to refer to. In terms of finances, here are some short-term financial plans and questions to consider.
Take Stock of Your Situation First
Before we can make any financial decisions, we need to understand what our financial situation is. We need to know how much we can expect to be spending right now, and where we would get the money to cover those expenses.
Step 1: What's Your Current Level of Income?
Have you lost your job or has your income dropped? Write down your current monthly income amount.
Step 2: What Supports Are Available to You?
Do you qualify for any government support measures? The big aid package is the CERB (Canada Emergency Response Benefit) which can provide $500 per week for up to 16 weeks, but there are other methods of support available as well. Check both the Federal Government's website and your local Provincial or Territorial Government's website to make sure you're making the most of the support you're eligible for.
Don't forget to check for municipal relief as well. Some Municipal Governments have introduced property tax relief, utility bills relief, and other measures that you may have to apply for in order to receive.
Step 3: Forecast Your Expenses
Some Canadians are spending less because they aren't going out to restaurants, events, travelling, etc. Others need to tighten the belt further if they've suffered a loss of income. Regardless, you'll want to review your budget if you have one, or create one for the first-time if you don't have one. Figure out what your spending level is now, and think about what cuts you could make going forward if you need to.
Step 4: About that Emergency Fund...
If you've found yourself in the situation of having more expenses than income during the crisis, this is where your emergency fund comes into play if you have one. Divide your emergency fund balance by your monthly deficit to get an idea of how long you can manage the storm without taking more drastic steps.
For example, after factoring in the loss of income and additional support you might be eligible for, comparing that to your current level of spending, you might find that you're short $400 per month. If you had $2,000 in your emergency account, you could go five months before having to make tougher choices.
Can I Stick to My Original Plan?
If you haven't lost substantial income or are otherwise still running a surplus, you can generally stick to your original plan: Keep saving and investing on a regular basis, and make sure your emergency fund is fully stocked up.
We don't know what round we're in with respect to COVID-19, but we know it's not over just yet.
