Cash Flow According to Covid-19

Okay, guys… I’ve been meaning to make more blog posts since the New Year and, honestly, life just kept getting in the way. And now, life is REALLY in the way for a lot of us in the most difficult possible sense as a result of the Covid-19 pandemic. So, I figured I needed to just put some time aside and write the sh*t that needs to be said. So, without further ado…. “Money According to Covid-19.” I will likely break this down into a few segments/posts over the next little while because, as much as it is a major health crisis, it is also having some pretty big financial impacts as well. So, first things first… let’s tackle cash flow!

Yes, you heard me right. I know some of you may be thinking “wait – what? Cash flow? Where does she think this magical stuff is flowing from when the world is essentially shut down…” but hear me out. This is actually why cash flow is super important and part 1 of this “Money According to Covid-19” series.

Whenever you are trying to figure out your cash flow situation, you need to look at what you have coming in and what you have going out. Right now, the problem for a lot of us is that the income is different than normal because many businesses have been forced to close and many individuals have been laid off due to safety concerns and/or lack of work as a result of the pandemic. So, what does that mean? It means we need to adjust and make a temporary emergency cash flow strategy so we can continue to navigate life with as little volatility as possible.

You will need to take a long hard look at the short-term future of your income. Have you loss the ability to earn all income or is it just reduced? If you are eligible for EI, you can look into your options there. If not, you might be able to apply for the government’s newly announced CERB program (Canadian Emergency Response Benefit).  Alternatively, you may also be able to still be paid by your employer if they are using the 75% wage subsidy program.

What is the CERB and who qualifies?

The CERB will be a $2,000/mth taxable benefit available to many of those over the age of 15 who are not eligible for EI and have earned $5,000 or more in 2019 or within the past 12 months before applying.

**Edited April 16, 2020**

This benefit is available to those who have lost work, had to stop working due to illness/childcare needs, or are working but receiving reduced income/hrs as a result of the covid-19 pandemic. As of April 15, 2020, you are eligible to receive the funding if you earn $1,000 or less during the eligibility period. These periods run in 4 week intervals, so if you are working and your income fluctuates, you may be eligible for some periods and not others.

The application portal is available as of April 6, 2020 and the government has implemented a suggested application day based on your month of birth. For the latest details on the CERB and how to apply, check the government site directly: https://www.canada.ca/en/services/benefits/ei/cerb-application.html

What other government benefits may be available to me?

Depending on your income level, there are a few other top-ups to existing government benefits that may apply. These include special one-time increases to the GST tax credit and the Canada Child benefit. The tax deadlines have also been extended and student loan repayments have been placed on hold for six months. Look into all of these that you regularly receive and include them in your emergency cash flow strategy. Eg. do you receive trillium benefits? Count that too! Every penny helps! Don’t forget, just because the tax deadline has been extended, doesn’t mean you have to wait. You may be owed a return, which could also help you out a lot right now.

(You can use this link to apply for the Canada Child Benefit if you are eligible and not already receiving it:  https://www.canada.ca/en/department-finance/economic-response-plan/covid19-individuals.html#increasing_canada_child_benefit)

Okay, so… now, as an individual (I’ll deal with business stuff in another post because this is all heavy stuff), you sort of have an idea of what you will likely be bringing in over the next little while. (Unless, of course, you are self-employed like I eluded to earlier. That is still a bit up in the air most likely, but we will do what we can!)

The next question is…. What the heck do we do about all the expenses?

Let’s face it, $2,000/mth is a start but, for a lot of people that doesn’t even begin to cover all the expenses once mortgage or rent payments enter the equation – not to mention car payments, groceries, and everything else on the list.

This is a GREAT question and, honestly, I don’t have the perfect answer. None of us ever expected to be living through a global pandemic and we are all strategizing on the fly here. But, there are a few things you can do. Of course, start with tallying up what ARE all the expenses that need to be covered. Go through your bank and credit card statements with a fine-tooth comb if you don’t already know and figure that out. You may be surprised with the costs that you can cut right now (or are forced to cut because businesses are closed). Think maybe subscriptions that you can pause and don’t be afraid to reach out to other service providers to see what they can do to help you right now. Just keep in mind that, usually, this help comes in the form of some sort of payment deferral and not a payment cancellation, so you will be expected to pay these back later. You don’t want to find yourself in a worse situation later because you deferred everything now.

What about all the mortgage deferral options the government mentioned?

You will probably realize that there has been a lot of talk about the big 6 banks offering mortgage payment deferrals. Some smaller and private lenders are also offering this on a case by case basis, but not everyone is. I have avoided suggesting this as a recommended course of action because it can quite likely end up costing you more in the long run. Refer to my general payment deferral comments above. Additionally, it is hoped that these solutions will not affect your credit rating given the situation and the fact that some companies are allowing these deferrals; however, it is not actually guaranteed that it won’t right now. From what I have read, Equifax is essentially leaving it up to how the providers report the missed payment. This could be a big risk to you if you are mildly stuck now but then things snowball and you need more help later.

That being said, talk to your mortgage specialist. They can tell you what options are available to you based on your situation and give you the information you need to make an informed decision on the best course of action for you.

Remember, an uninformed decision is oftentimes a bad decision!

Okay, so, I know my income, I know my expenses, and I still can’t manage everything… what next?

Look at those savings. If you have an emergency fund and are unable to make all the bills on your currently reduced income, this is what you were saving for! It is rainy day time and it is okay to use these funds if you need to. Preferably, tap into your cash savings account first – and then look at non-invested funds in a TFSA. If those are not enough, you may have to consider looking at invested funds in your non-registered account or TFSA. Don’t touch the RRSP funds.

Ideally, you don’t want to touch all of your invested savings (TFSA or otherwise), but if you have to, you have to. If you withdraw these, you would essentially be “locking in” your loss on your investments, which, if they were originally for a longer-term goal, would have otherwise had the chance to eventually recover from market downturns. You could also look at options for adjusting parts of your portfolio that you may need to use sooner rather than later, moving at little into "safety" at a time (or vice versa when you are recovering - slowly moving the "not now" funds into investments to watch them eventually grow over time).

You could also look at lines of credit and weigh which is more efficient. The Bank of Canada has lowered interest rates significantly right now. You will still want to ask yourself the following: Are you sacrificing long term goals? Will you be able to pay the credit line back? How much would this cost you in interest vs. what you can save long term? You definitely don’t want to have to live off a credit card and put yourself in a worse situation later if you can avoid it.

Phew…. This is definitely not everything about money & Covid-19 but, it is a start. I have mainly focused on options for individuals and families here as opposed to businesses as it is the “most straight forward.” I can try to add more thoughts on business options and info in another post at a later date. But, make sure for both individuals and businesses, to keep checking the government website for the most up to date and reliable information about their pandemic financial assistance. This post is already pretty long and I didn’t want to end up writing a novel! (Not today anyway. 😉)

TLDR: Try to get the best picture of your current situation as you can. Right now, it’s all about doing the best you can with what you have. And remember, we’re all in this together. If you need help, ask for it. We may not all have a ton of extra funds available, but communities are stepping up to help each other with food, emotional support and all kinds of other things.

PS. Some helpful links for business owners (easier to link you elsewhere than rewrite the same info):

a) https://www.advotaxlaw.ca/post/salaried-sally-proprietor-peter-and-dividends-david-a-covid-19-support-case-study

b) https://www.advotaxlaw.ca/post/non-eligible-dividend-recipients-can-qualify-for-cerb

c) https://www.advotaxlaw.ca/post/the-flaws-of-the-ceba-program-and-how-to-fix-them