2020 has been a year of ups and downs already and we haven’t even hit the spring housing market yet. Many of us are waiting in limbo to see how long COVID-19 is going to stick around, keeping us cooped up indoors while the weather outside is getting warmer by the day. I’ve had many clients call and ask what to do with their mortgage, how to deal with their debt and what the forecast on interest rates might be, come summer when the real estate market which we had expected to be a hot one, may only be lukewarm at best. To help ease a few financial worries, I wanted to share with you a couple of financial tips to help keep you in the black and out of the red until life returns to a more normal day to day.
If you’ve recently been laid off what can you do to protect your finances?
COVID-19 hit fast and hard which left many businesses big and small in a tough situation having to lay off employees either because of a shortage of work or as a maintenance strategy to retain and protect cash flow to keep their business from crumbling financially. Owners want to protect their employees from financial issues and for some laying them off was the better path to take so that employees could depend on at least a certain amount of income coming in opposed to having to work reduced hours leaving them with uncertainty not knowing what their paycheques would look like week to week. However, even as a best case scenario being laid off is difficult to deal with emotionally and financially. It takes a lot of planning, and if not planned with care, you could be left with big credit card debts, having to downsize a home that is more affordable or in some extreme cases bankruptcy.
Now is the time to make a plan for yourself so that you can steady yourself to weather the storm, and be in a good place to rebuild quickly once things turn around. To do that be sure to:
Pay off as much debt as you possibly can in terms of your credit cards and lines of credit. Paying off debt, as odd as it seems will help eliminate how much interest you pay on the money owed as you’ll want to keep as much cash flow as you can throughout the month. Paying off debt also gives you more accessible credit. Not that you want to rack up a bunch of credit but if you’ve paid off your credit card or line of credit now, in a month from now when your cash flow is possibly even tighter you’ll have room to borrow against them as needed. If they were maxed out then, you’d not only be paying high interest rates but you wouldn’t be able to supplement income by using them strategically.
Take care of your four walls. What that means is make sure you pay your mortgage, you have the groceries you need, you have all your prescriptions and medications taken care of. You’ve heard the saying if you’ve got a roof over your head and food in your belly, you’re doing ok! In our present state of emergency, that’s true. We might not be able to go out to eat, our kids can’t have playdates or sleepovers and there’s so much we realize we miss. But, if you optimize your cash to make sure you keep that roof over your head and food in your belly, you’ll have your bases covered and you’ll be able to sustain yourselves for quite a while if you prioritize your needs over your wants.
Try not to take the government’s money. This one can be a little difficult to understand because if the government is trying to help me out by giving me free money why wouldn’t I take it? Well, they are giving out supportive funds but they sure aren’t free. I’m not saying that it’s a must, but just try to minimize how much of the emergency efforts you do take in. Reason being is because they can have long term effects on your finances. For example, you can defer your mortgage payments for up to 6 months at the moment. However, that doesn’t mean you get 6 months knocked off your mortgage overall, it means they tact those 6 months of mortgage payments on at the end, and you’ll likely end up paying more interest on your mortgage overall when everything is said and done. If you have a student loan, you can defer those payments too, but again the reason is to help you now, in an immediate way, and they will make it worth their while when things have normalized. The CERB (Canadian Emergency Response Benefit) also has a couple of catches to it. They rolled out $2,000 per person, but later, if they review and see that you weren’t actually eligible for that credit payment, you’ll be asked to pay a portion or possibly all of it back. The credit is also not tax-free. So even though they have given you $2000, you’ll be expected to pay nearly $500 per $2000 back come tax time next year. So, if you have received the CERB credit, be sure to set that money aside now if you’re able, so you’re not left wondering where to come up with the extra come April 2021.
No one is an expert when it comes to navigating the waves of a crisis like COVID-19, which is why now, more than ever, it’s a good idea to educate yourselves, make a plan, and ask for a second or even third opinion so that you can be in the best position possible to rebuild when the time comes. If you have any questions about mortgages or how to put a plan in place for you and your family financially, remember I’m your financial partner, not just your friendly, neighbourhood mortgage broker. Give me a call at (705) 315-0516. I’m always virtually available to help you out in any way I can. Lastly, be safe friends, we’re all in this together!