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Apr 30, 2020

Five Critical Steps To Survive The COVID-19 Crisis

by Gordon Stein

Gordon SteinEverything has changed. The COVID-19 pandemic caught us off guard and unbalanced. Everyday actions like office meetings, retail shopping, restaurant dining and visiting friends have stopped. What was normal on Tuesday become questionable on Wednesday and unthinkable on Thursday.

Many of us have faced multiple simultaneous shocks including job loss or furlough, a massive drop in our retirement resources and social isolation. And likely some panic with every sore throat or cough. We bounce back and forth between a new reality and our old world. It all seems surreal. We are not alone, yet the isolation can make us more alone than ever.

While we can’t change our new world, we can ensure that we are properly set up to weather what may be a lengthy storm. We will get through it, and like any other crisis it will have an end and a bright future that follows. Let’s look at some ways to prepare:

Stay Safe

There are lots of financial steps that we can take, but protecting our health is the most important thing. This is a nasty virus and we are all vulnerable for both our own wellbeing and those that we may infect. The instructions seem simple enough: Wash your hands frequently. Don’t touch your face. Physically isolate from others.

But the virus can live on hard surfaces for days. A trip to the gas station to inflate a low tire involves touching the air hose. Then, that same hand grabs your phone to check a text, then opens the car door, touches the steering wheel, the gear shift and then the front door handle and a light switch on the way to washing your hands. Pretty easy to leave a trail of the virus for someone else to catch. Be extra careful.

Build Cash Reserves

To prepare fiscally, begin by stress testing some scenarios in your current situation to check your financial stability. How long could you live on cash reserves if you were to lose your job? What if your spouse lost theirs, or both were gone? If you have tenants, what if they lose their jobs? Finding a new role during peak unemployment will be challenging and your financial reserves have likely dropped in value.

To build reserves, you may want to look at additional sources of income, renting out a spare room, gathering dividends versus reinvesting them, reducing expenditures, delaying major items like cars and appliances or temporarily reducing investment contributions or other measures. Accumulating six months’ worth of expenses is a good idea and a year’s worth is even better.

Raising cash will help give you peace of mind and save you from tapping investments while the markets are down.

Eliminate Non-Essential Expenses

Now is the time to reduce your monthly costs to build cash reserves while you are still working. You will be grateful later if you need a cash cushion to supplement a severance package or Unemployment Insurance. If you are unemployed or retired, you now have the time for this exercise and if you are working from home, it’s is a great way to redeploy your commuting hours.

Print off the last full statement from your chequing account and one from each of your credit cards. Focus on the recurring expenses in particular:

  • Are there any that can be cancelled? Gym memberships that you don’t use, magazines that you can get for free, clubs that you no longer frequent or services like home phones that you can do without?
  • Which services do you continue to use, but could benefit from a cost reduction? Call them to ensure that you are on the right plan and at their best rate. This works for every type of insurance, cell phones, TV, internet and even things like satellite radio subscriptions for your car. Type “compare rates” and the category into your search engine to get started. Many have shop around tools like Kanetix and lowestrate.ca for life insurance or whistleout.ca for cell phone plans.

Yes, those calls aren’t fun and the hold time can be miserable. But a one-hour call that saves $100/month for three years is worth $3,600. That works out to earning at a rate of about seven million a year. Looks like you have the time to make the calls after all.

Working through all your expenses in this way frees up cash during this crisis and also starts a great habit that can make room for faster debt repayment or increased investment contribution in the future.

Maximize Government And Work Benefits

If you are in a furlough situation, you may have continuity of benefits. This could be a good time to get new glasses, contacts or hearing aids. Review your benefit booklet for more inspiration.

If you are still employed, but your work may be at risk, try to use any relevant benefits while you are still working. Are there expenditures that you could be reimbursed for, some part-time education that could further your career or other health benefits available?

If you have become unemployed, negotiate your severance package carefully with the help of a good employment lawyer. Don’t sign anything in haste. Often you will be able to add 10 to 20% or more to your package. Take the time to review all possible government benefits to see what applies to you. Details are at the Unemployment Insurance and Canada Emergency Response Benefit websites.

5. Optimized Investing

As the great investor Warren Buffett said, “Only when the tide goes out, do you discover who has been swimming naked”. When the virus hit, everyone was caught in a different situation. Some were sitting safe in cash or treasury bills, while some had an appropriate mix of stocks and bonds. Others were caught out of balance with a heavy equity mix or worse still, significant exposure to the oil industry.

Whatever you were wearing when the tide went out is now history. Grab a towel and let’s see what to do next.

Well covered in a wetsuit—you have an age appropriate mix of quality stocks and bonds and you have a stable situation going forward (cash on hand, a safe dividend stream, low expenses, and a stable job or perhaps a pension or annuity), count yourself lucky. You may want to rebalance your portfolio to restore your original target asset mix. Then use your other sources of income to live on while your portfolio eventually recovers. If you have surplus cash you may want to periodically invest to dollar cost average into the market and benefit from the recovery. A Dividend Reinvestment Program (DRIP) is also a way to benefit by letting your dividends gradually buy more shares at lower prices.

Swimsuit only—If your job is somewhat at risk, your portfolio has dropped in value and you have only three or four months of savings, you need to be defensive. Conserve cash, do whatever you can to maintain your job and build a larger cash reserve. Resist the urge to sell your equities in a panic or to buy additional equities while they are down. They may drop further. Focus on safety and weathering the storm.

Stay safe, connect with friends and family online, help those around you. Enjoy the days ahead and find meaning in your life. Markets will recover, we will get back to dinner parties, hugs, gyms and beaches. A bright new future is just around the corner. I promise.

Gordon Stein is a sought-after Canadian personal finance speaker, lecturer and author of the bestselling personal finance book Cashflow Cookbook. His blog is at cashflowcookbook.com.