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Spending lockdown: 6 tips for protecting your finances during the pandemic

For 57% of Canadians, the ability to financially get through each day is becoming increasingly difficult to achieve due to the impact of COVID-19.

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Young Canadians have taken the biggest financial hit, with 82% of Generation Z (those born from 1995 on) and 67% of Millennials (those born between 1980 and 1994) seeing a severe income drop during the pandemic.

Yet the financial impact of COVID-19 is not solely about the lack of money coming in, it’s also about the amount of money going out.

Regardless of your current cash flow situation, how you manage your spending now will determine your overall financial health when we finally reach the end of this crisis.

With that in mind, here are 6 tips to lockdown spending and protect your finances during the pandemic:

#1: If you’re thinking about tapping into emergency savings, do so strategically.

This means first taking a step back and figuring out whether you need to actually touch those savings.

Depending on how much income you need to fill the gap, establishing a tighter budget might be all you need to do to maximize your monthly cash flow. If that’s still not enough, proceed with tapping into your savings, but start with cash and TFSAs (since there are usually no tax implications).

However, resist tapping into your RRSPs, since any withdrawals will be taxed and you’ll permanently lose the contribution room.

#2: No emergency savings to tap into? Create an emergency budget instead.

An emergency budget is basically a priority-based spending plan that factors in your reduced level of income.

Start by identifying the most important expenses, or ‘must-haves’. These essentials include rent/mortgage, food, and utilities. Then cut (or scale back on) anything that is non-essential, such as gym memberships, monthly subscriptions, and cable/streaming services.

By cutting back on unnecessary expenses, you will free up cash flow, which can then be put to better use.

Like building an emergency fund.

Because while not everybody has one, the COVID-19 crisis has proven that everybody needs one.

Are you spending on budget? Check out our budget breakdown.

#3: Make smart decisions when it comes to using credit (to keep your credit score in check).

Almost 3 out of 5 Canadians are currently relying on credit cards and loans in order to make ends meet.

The longer we stay in lockdown, the greater the potential for all of that debt to spiral out of control.

That’s why it’s important to take a mindful-approach to using credit—and the first way to do this is to always pay your bills on time.

A single late payment on a loan or credit card can negatively impact your credit score. Keep in mind that the longer you miss making a payment, the greater the detriment to your credit score. In Canada, that information stays on your credit report for up to 6 years. So being deliberately delinquent with your payments isn’t a very positive course of action, even during a pandemic.

Do you have to rely more on credit during these uncertain times? Here are 5 things you need to know about credit and debt when it comes to your credit score.

If you’re currently unable to afford to pay all of your bills in full every month, be sure to at least pay all of your bills on time—making the minimum payment for each.

Should you still be contemplating hitting the pause button on payments, call and speak to your creditor/lender first to see if a temporary deferral is actually possible.

If bigger loans are becoming a challenge, such as your monthly mortgage payment—consider refinancing over deferring.

While mortgage deferrals have been making headlines in recent weeks, keep in mind that interest will still accrue on those deferred mortgage payments (and then be added into the remaining balance).

In which case, refinancing might be a better solution.

Whatever option you’re leaning towards, it’s always better to ask questions and do the math to ensure which course of action is right for you.

#4: Consider switching to pre-paid products as a further way to keep your credit/spending in check.

If prevention is the best medicine, then paying in advance on certain products is a further way to keep you from overspending during the pandemic. From prepaid credit cards and cell phones to prepaid long-distance cards, setting yourself preset limits will ensure that you’ll always stick to whatever budget (or emergency budget) you’ve set for yourself.

#5: File your taxes—particularly if you have a refund coming.

While the government has extended the tax-filing deadline to June 1st, the benefit to not waiting until the last minute is if you’re expecting a refund. The sooner you get your taxes done, the faster that refund will make its way to you. That means adding more of a financial buffer to your current cash flow situation, which is something most people could use right about now.

Check out these tax time tips to maximize your return.

#6: Beware of COVID-19-related financial scams.

It’s sad to think this is actually a thing. Yet unfortunately not only are there people in this world who will look to profit from any crisis or situation, the past month has seen a massive spike in COVID-19-related scams.

The Canadian Anti-Fraud Centre (CAFAC) is urging Canadians to be vigilant and watch out for scams such as:

  • So-called cleaning or heating companies purporting to offer duct cleaning services (or special air filters) to protect against COVID-19
  • Individuals pretending to be from the Centers for Disease Control and Prevention (CDC) or World Health Organization (WHO) offering fake lists for sale of COVID-19 infected people in your neighbourhood
  • Red Cross and other known charities offering free medical products (I.e. masks) for a donation

For a full list of reported scams, visit the CAFC website.

If you think you’ve been contacted by a COVID-19-related scam, do not engage with the fraudster.

Instead, immediately delete the email without opening it; do not answer calls from numbers you don’t recognize; and if you do happen to answer the phone and someone is on the other end trying to get you to reveal personal information and banking details, immediately hang up and block the number.

Also, feel free to report any instances of COVID-19-related scams to the Canadian Anti-Fraud Centre (CAFC); Royal Canadian Mounted Police (RCMP); the Competition Bureau; or Ontario Provincial Police (OPP).

While these are indeed challenging times, we’re here for you every step of the way.

So if you’re feeling nervous about your investments, are looking for better borrowing options for you and your family, or simply need a little guidance on how to financially navigate through these tough times—call on Educators Financial Group. Regardless of where you are on the pay grid, or what your pension income is in retirement, we can offer you the financial peace of mind you need, along with the genuine investing and lending solutions you’re looking for.

Have one of our financial specialists reach out to you.

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