69. Covid-19 & Your Finances

69. Covid-19 & Your Finances

69. Covid-19 & Your Finances

How Covid-19 impacts your finances and can create a cash flow crises. Simple Money Podcast – Canada’s own personal finance podcast.

Note: Govt’ stimulus package is expected to be released today

Info@ffcoach.ca Twitter: F_FCOACH

Another Brand New Episode!

69. Covid-19 & Your Finances

It’s been a little while since our last episode and I hope that all of you, your family and friends are doing well amongst this unique landscape happening across the world. Throughout history, we occasionally are confronted with defining moments and this is absolutely one of them.

This is the first episode of an in-depth and on-going look at the Covid-19 virus and how it financially is impacting the individual Canadian and their families. With new developments every day we’re going to look at these policies and how they impact us.

As usual we will break these down into short episodes and simplify the issues at hand. On this episode we’re going to cover how Covid-19 is impacting our finances, our next episode will be on the financial stimulus package that is expected to be launched this week and after that, we will look at how to help protect your finances.

So let’s first catch up to speed – what we’re seeing is a global pandemic that has left no corner of the world unaffected. China, South Korea, Italy, Spain and even the United States have been seriously impacted. On an upper level we see economic activity halting as the consumption and output of households and industries plummeting. In conjunction mixed with other factors, oil prices have fallen nearly 53%, stock markets have plummeted and central banks are slashing interest rates.

Thankfully within Canada, we’ve been fairly spared the health impact that has occurred to other countries. However, as most health care professionals have stated – this can quickly change.

A Cash Flow Crisis

On an upper level, the TSX has dropped by around a quarter since the beginning of this year and the bank of Canada has cut interest rates twice – to a total of 1%. All affecting Canadian households in some way or another. 

The finances of individuals and household have been heavily impacted in various ways. In the most simplest terms – we are seeing a cashflow and net worth crises. Our inflow – income is at risk, our outflow – expenses have been seriously affected and our net worth is being affected by plummeting stock markets and reduced interest rates on savings accounts. These three areas are what the government and we are going to focus on during this episode and ongoing series.

Firstly, household income is very vulnerable right now. Many individuals and families have had their incomes slashed due to a variety of factors – such as businesses temporarily shutting down, reduced hours, self-isolation, and more. This first impact reduces the inflow side of income on your budget.

The biggest risk here is that income will fall below one’s expenses and lead to cash shortfall. A reduction of income can also lead to a reduction of funds used to achieve a financial goals like retirement or saving for a home purchase.

One of the first government policies has been a revised EI sickness benefits – we’re going to do an in-depth episode on this topic, but the basic idea is that if you qualify for EI payments – than you can receive up to 15 weeks of payments the lowest of 55% of your weekly average income or $573 before taxes are taken off. Currently individuals are able to receive sick benefits for up to two weeks without a doctors note and without a one week waiting period.

The idea is that this benefit will provide a bottom support to one’s income if one is not able to work due to a sickness.

How Income is Affected

Firstly, household income is very vulnerable right now. Many individuals and families have had their incomes slashed due to a variety of factors – such as businesses temporarily shutting down, reduced hours, self-isolation, and more. This first impact reduces the inflow side of income on your budget.

The biggest risk here is that income will fall below one’s expenses and lead to cash shortfall. A reduction of income can also lead to a reduction of funds used to achieve a financial goals like retirement or saving for a home purchase.

One of the first government policies has been a revised EI sickness benefits – we’re going to do an in-depth episode on this topic, but the basic idea is that if you qualify for EI payments – than you can receive up to 15 weeks of payments the lowest of 55% of your weekly average income or $573 before taxes are taken off. Currently individuals are able to receive sick benefits for up to two weeks without a doctors note and without a one week waiting period.

The idea is that this benefit will provide a bottom support to one’s income if one is not able to work due to a sickness.

It’s expected that the federal and possibly provincial governments will be announcing more measures this week and as stated in a press conference, they will become payable as soon as possible.

Your Expenses


Next up is that we have our expenses – This is a really interesting category because this crisis is drastically changing our lifestyles and where we spend our money. Less

Depending on how a household reacts to the crisis, this will shape how their expenses change. For example, a household that self-quarantines will probably have a higher electrical and grocery bill but reduced expenses like restaurants or entertainment.
Panic buying has also unfortunately become the norm with over consumption of groceries and hoarding of certain household items like toilet paper and sanitization products.

Expenses are also being targeted by governments to help alleviate the financial stresses caused by Covid-19. Some mortgage issuers are allowing holders to skip a payment or two and there are talks of reducing he costs of utility bills. It’s expected that the Canadian Government will target this area tomorrow with a stimulus package tomorrow or later this week.

Expect a special episode that just covers this area.

Drops in Net Worth

The last area that is being financially impacted are a household’s net income. The large impact here has been through the collapse of financial markets. Investments have plummeted across the world cutting some household’s net income drastically.

It’s obviously extremely frightening to experience such drastic drops to your hard-earned funds. Seeing a 25% reduction is something that is not easy to experience and can obviously incite fear. It also doesn’t help that there is a general sense of panic as details change by the hour.

The first thing to remember is that if you were affected by the drop in investments, you only have a loss only IF you sell your investments. History has shown us that these markets will bounce back after a crisis if you hold your course steady.

I actually began my financial career just before the great recession over a decade ago and the general climate is very similar. There is a lack of knowledge and overall panic on where everything will end up. Which can obviously be very frightening. However in hindsight, everything worked out.

This market correction actually offers buying opportunities for those that feel courageous enough and have the ability to put money aside. One opportunity that I’ve been watching is with financial institutions – like CIBC whose dividend is ranging currently from about 7 to 8%. In this case, even with a drop in stock value, this can dividend pays more than many investments

One of the things that this virus has done is that it has exposed the errors in how individuals have invested. Such as taking more risk than they feel comfortable with, investing emergency funds and more.
 

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