As the coronavirus creates havoc on personal budgets across the country, many people are learning how to adjust to a new normal when it comes to personal finances. For some, this means getting by on less as they are dealing with reduced hours or salary cuts. For others, the $2,000 from the Canada Emergency Response Benefit (CERB) has increased their typical monthly income and they’re suddenly finding they have more wiggle room in their budget. Here are some tips for navigating your personal finances, no matter where you fall on the spectrum.
If you’re now earning less
The $2000 government emergency funding via CERB is meant to be income replacement for many people who have experienced a job loss due to coronavirus. For some, it is significantly less money than they were earning before, requiring them to adjust their monthly budgets. If you’re struggling financially during social distancing, here are some immediate actions you can take.
1. Reduce your expenses
You’ll want to make your immediate expenses as minimal as possible so that you can survive the social distancing period, and any potential recession following, without taking on too much extra debt. Here are some expenses you can look to immediately decrease:
- Personal debt: Explain your financial situation to lenders and inquire about postponing payments or creating a payment plan. While this won’t reduce your overall debt in the long term, negotiating for temporarily smaller payments could help you keep as much cash available for expenses right now.
- Use one car: If you’re a two-car household, consider moving down to one car during social distancing when you’re probably not leaving the house often anyway. If you and your partner can get by with sharing a car, you can reduce the insurance on your second car to the minimum and save some money each month to be used in other areas of your budget.
- Cancel recurring subscriptions: Now’s the time to cancel any subscriptions you were previously on the fence about keeping. Go through your credit card statement and make sure you’re not subscribing to anything you forgot about. Also, consider how many entertainment subscriptions you absolutely need. For example, can you get by with just one streaming service for this period of social distancing? Each subscription might not seem like a lot, but they do add up.
- Consider a rent deferral: Deferring large expenses like debt payments or rent has pros and cons. While it could help you find cash in your budget now that you desperately need, you’ll still owe the money at a later date. If you’re trying to decide if a rent deferral is the right option for you, we’re always happy to chat with you to help you think about your options. Reach out to us.
2. Use your savings
If you have emergency savings, now is the time to use them. While it can be emotional to see your savings dwindle, especially if you were hoping to use them for a bigger purchase down the road, it’s ultimately cheaper to use your saved money to pay for expenses right now than it would be to put costs on a credit card where added interest could significantly increase the ultimate cost of your purchases in the long run.
3. Get a side gig
Sometimes it’s not possible to reduce your expenses enough to live comfortably within your new budget. If you have fixed expenses that are impossible to defer, or if it would be undesirable to do so, one savvy move is to look into earning side income during this period of social distancing. Here are some ways you can make a little extra cash to pad your budget:
- Work at an essential service: Many essential services such as grocery stores are hiring to keep up with the added staffing needs that social distancing measures require.
- Do food delivery: Delivery services such as DoorDash or UberEats are a flexible way to make some extra cash. You work when you want, for as long as you want. Keep in mind you’ll have to pay for your own gas as you make your deliveries.
- Lawn care or spring clean up: If you feel comfortable mowing lawns or providing spring clean up services, advertising your services and rate through your social network could help you make some extra funds to get you through the pandemic.
- Online tutoring: If you have a strong background in any of the traditional subjects such as math, English or science, you might be able to find flexible, online work as a tutor.
Be creative and resourceful when trying to find a side gig that can boost your income, you might see opportunities in places where you hadn’t previously thought to look.
4. Consider a personal loan
If you’re struggling to make ends meet and need some extra cash to help with expenses, taking on strategic debt is always an option. A loan could be a savvier option than putting funds on a credit card because a loan is considered installment debt, versus a credit card which is revolving debt.
With installment debt, you know exactly when you will be out of debt if you continue to make monthly payments. The term of the loan is obvious and you can create a financial plan to get out of debt. When it comes to revolving debt, such as a credit card, many people have a difficult time understanding how their payments work, or sticking to a payment schedule and not continuing to spend on the credit card.
If you get a personal loan, be sure to ask about any prepayment fees, the interest rate and the term of the loan.
If your budget is temporarily larger
If you’re receiving the $2,000 CERB income replacement and it has increased your monthly budget, you might be tempted to purchase items that have been on your wish list with the extra funds. Canadian online retailers are seeing a surge in online shopping, and some households have been reporting that online gambling has become a bigger pastime.
While it can be tempting to spend this money on things that make you instantly happy, using it in a more strategic way can help you get further ahead financially, moving you up the credit ladder and into a more secure financial position. Here are some ways you can use the extra cash if you have room in your budget.
1. Create an emergency savings fund
Financial experts typically recommend having three to six months of emergency savings at all times. If you don’t currently have an emergency fund, or if your emergency fund is smaller than you’d like it to be, the extra bump in income from the $2,000 CERB income replacement is a good opportunity to build your savings.
Emergencies happen. Having savings to cover anything from a job loss to car repairs can prevent you from going into debt when the worst-case scenario occurs. If you’re planning to start an emergency fund now, open a savings account with no or low monthly fees and the highest interest rate possible. Consider the Mom Match Savings Account through Cashco which matches every $10 saved, up to $120. Cashco also offers a Jumpstart Savings Account, or, you can opt for a High Interest Savings Account through any traditional bank.
2. Improve your skills
Is there any way you can improve your marketable skills and boost your resume with the extra funds? Perhaps getting certified in First Aid would help you qualify for higher paying jobs, or maybe you want to take the Teach English As A Second Language (TESOL) course so you can pick up a TESOL side gig. If you’ve always wanted to improve your resume but never had the funds to do so, directing any leftover funds from the $2,000 CERB income replacement benefit is a smart way to build your future.
3. Make extra debt payments
Being stuck in debt can significantly limit your future, which is why financial experts recommend prioritizing debt repayment after you have a sizable emergency savings fund built. If you’re wondering how to take the most strategic approach to your debt, consider either the snowball method — where you work to pay of the entirety of your smallest debts first, before moving on to larger debts, or the avalanche method, where you direct extra cash toward the debt with the highest interest rate first.