What COVID-19 can teach us about personal finance

The pandemic has highlighted how quickly and dramatically elements which originated thousands of miles away can disrupt our entire way of life. A microscopic virus, invisible to the human eye, has shuttered borders, transformed the economy, and altered the perspectives on how we work, shop, and interact with one another.

In this respect, COVID-19 is a fantastic stand-in for all the unexpected costs and events that have the potential to disrupt our finances and transform our lives. Be these forest fires, an economic recession, or even an emergency home or auto repair, the pandemic is yet another example of why it’s important to plan and save for economic forces beyond our control.

Life happens, but that doesn’t mean we’re powerless

It’s impossible to fully protect ourselves from the vagaries of life. Even the most meticulously maintained bodies, vehicles, and economies sputter from time to time. However, there are steps we can all take to prepare for these unfortunate eventualities and minimize their impacts.  

What we lack in our ability to predict the future, we more than make up for in our ability to imagine, and steel ourselves against a wide range of scenarios — from pandemics to job losses, mechanical failures, and incredible forces of nature.

Some steps you can take to protect yourself against a wide range of unexpected costs include:

1. Build your emergency fund — Financial advisors recommend setting aside between three and nine months worth of living expenses to help you get through a prolonged financial emergency. You don’t have to do this all at once, start with a small goal of $500 or $1,000 and build from there.
2. Invest in insurance — Not everything in your life needs to be insured, but it’s wise to purchase adequate coverage for high value items and conditions which would be difficult to replace. This includes everything from your home, primary vehicle, and certain possessions, to your health and your life. Speak with an insurance broker to discuss what coverage might be right for you.
3. Adopt a regular budgeting habit — A budget does more than help you control your spending. It gives you a clear picture of where all your money is going. Having an itemized list of each expense allows you to cut back and consider more cost-effective options when money is tight. Better to build this in the comparatively clear-headed non-emergency moments than when your thoughts are clouded by panic and worry.
4. Build your team — Financial and investment advisors, mentors, and mental health professionals aren’t just for the ultra wealthy. There are some surprisingly affordable service providers out there and everyone can benefit from their wisdom and insight; especially during a crisis when decisions are difficult and options uncertain.
5. Nurture your relationship with creditors — Lenders, landlords, and other creditors will be far more receptive to your needs in a crisis if you have a demonstrated track record of financial restraint and responsibility. Limit the amount of credit you use, pay your bills in full and on time, and communicate any potential problems the moment you think you may start to fall behind. You may be surprised how flexible they’re willing to be.
6. Keep an eye for government or non-profit supports — You may be surprised by the number of grants, subsidies, and other financial supports available to help you through a crisis. Do some research to see what various organizations are offering, whether you qualify, and how you can apply for help.
7. Stay vigilant — Scammers, fraudsters, and profiteers love a crisis. If something seems too good to be true or like it’s trying to prey on your emotions, it probably is. Avoid anything that seems to make outlandish claims, threaten your safety or security, demand passwords or credit card information, or otherwise feel like they’re taking advantage of the situation.
8. Reduce or eliminate your debt — Debt that seems manageable during normal times can severely hinder your ability to navigate a financial crisis. And even though your debt may seem manageable now, interest costs and repayment obligations can also make it difficult to save and prepare appropriately for the unexpected.
9. Manage your mental and emotional health — Crises are stressful and can take a lasting toll on your mind and body. The more you focus on your diet, exercise, sleep, and stress management habits now, the better prepared you will be to weather challenges on the horizon. Don’t hesitate to reach out to your doctor or a mental health provider.

Do what you need to survive

We’re often blind to the severity of a crisis and fail to take the measures necessary to help us see it through. There are tragic legends of people who died of thirst in the desert with canteens half full of water. Rationing may be able to save your life, but as the experts say: water in 72 hours is of little use when you’re dehydrated right now.

From a financial standpoint, you need to recognize when an emergency is an emergency, and when supposedly conventional wisdom no longer applies. If you’ve spent through your savings, it’s not only okay to pull money from RRSPs — it’s probably the right thing to do. If you’re no longer able to manage your debts, a Bankruptcy or Consumer Proposal may provide the relief and financial cushion you need to recover. You don’t have to be in dire straights to contact a Licensed Insolvency Trustee and discuss your options. Waiting until that point simply adds needless stress and suffering.

If the COVID-19 pandemic has taught us anything at all, it’s that being proactive and prepared is the best way to protect yourself from both the virus and its economic impacts.