Budgeting for a pandemic

Being fit physically isn’t just beneficial (for the most part) in surviving the novel coronavirus. Tip-top financial health is turning out to be pretty helpful, too, as record numbers of Canadians are losing their jobs or having their hours cut back.

"It’s really survival of the fittest," says Brian Denysuik, CEO of Creditaid, who has provided credit counselling for decades in the city.

He says the recent impact financially on households from COVID-19 reminds him of the struggle he and others living south of Winnipeg experienced during the 1997 flood.

"It was all about surviving — protecting yourself against the water," he says. "We’re in a similar position now. How do we protect ourselves and our family?"

First and foremost is keeping safe and healthy. After all, without physical well being, being in great financial shape loses a lot of its charm.

A recent DART & maru/Blue survey from earlier this month found 4.2 million Canadians believe they will be on the verge of bankruptcy in the next three months if their financial situations don’t improve.

While a deeply troubling figure, Denysuik suggests most individuals can avoid that scenario by taking steps now, undergoing an extreme makeover of their household budget.

Most are only now coming to grips with what is going on with their money and what their prospects are for meeting a variety of obligations from rent and mortgage to auto and credit card payments.

"It’s like the calm before the storm," he says. "People are digesting where they’re at, and they’re not ready to take any action because they’re not sure on the outcome of tomorrow, the next week or the next month yet."

First things first: it’s time to return to the old school of budgeting. That means sitting down with the family around the kitchen table with a pen, paper and calculator.

"To understand what can go out the door, you first need to know what the heck is coming in," Denysuik says.

If you’re still working and earning what you were before the pandemic struck, that’s great. Then again, this budgeting exercise is still useful because it may turn up extra cash — like savings on parking at work and gasoline — that can be used to save for the future. (If you don’t already have one, an emergency savings account for times like these, for instance, is a good place to sock away surplus cash.)

But if you’re down on income — having been laid off, furloughed or seen your hours cut back — budgeting is your means to stay afloat and, hopefully, avoid insolvency.

The first step is looking at income. If you have none, it’s important to apply for the Canada Emergency Response Benefit (CERB), the federal income support benefit designed on the fly for the pandemic.

The next step is cutting costs. Most lenders are now providing deferrals on mortgages, automobile and credit card payments, and rate cuts on higher interest rate debt.

"All the big five banks in Canada have reduced their interest rates on credit cards temporarily to provide some financial relief to people affected by COVID-19," Luke Sheehan, vice-president of marketing at Ratehub.ca, online portal for credit and other financial products.

Given the average Canadian carries roughly $23,500 in non-mortgage debt prior to the pandemic, calling the credit card provider to get a rate cut and deferral — which won’t affect your credit rating (allegedly) — could free up a lot of room in the budget.

Credit unions, by the way, are offering similar options. In fact, Vancouver City Savings Credit Union (Vancity) recently announced it’s cutting the interest rate on credit card debt to zero for its members.

Cutting debt payments is by no means ideal. It’s not forgiveness. In many cases, interest is still accumulating and you’re going to be even more indebted when things return to normal.

That’s why calling or emailing your financial adviser (if you have one) is to your benefit. They can help you frame what your options are — from reducing the interest rates on debt to temporarily pausing deposits to RRSP, TFSA and other automated savings plans.

"Try to strip your budget down to the pure basics," Denysuik says.

In many cases, that might be putting breakfast, lunch and dinner on that kitchen table. Here too, many households can find flexibility.

"That’s the one aspect of the budget we can control the most." He adds it’s also a good opportunity to bring the kids onboard.

"It’s a teachable moment," he says.

After all, budgeting is a life-long financial skill that pays growing benefits over long periods of time.

If after cutting, deferring and everything else you still find yourself underwater, remember the catchy Mr. Rogers phrase that is so popular these days: look for the helpers. And there’s lots of help out there, including Credit Counselling Society and Community Financial Counselling Service.

For profit counselling, like CreditAid, also provides free consultations to determine whether you need someone like Denysuik to negotiate with creditors to reduce the interest rate significantly and set up a debt repayment program.

"If bankruptcy is the right thing to do, (debt counsellors) are going to refer you because we can’t do those activities," he says.

But going straight to the bankruptcy option first, Denysuik adds, is like "going to a surgeon before you even know what the heck is wrong with you."