Apart from death and taxes, there is one thing for certain, the unpredictability of Mother Nature (and our response to this unpredictability).
While we often think of earthquakes, wildfires or floods, when it comes to the impact of Mother Nature, we should also add in worldwide disruptors. And just like death and taxes, it is possible to financially prepare for unpredictable Mother Nature events, like the current COVID-19 outbreak.
And, it’s official: The World Health Organization officially declared the current coronavirus outbreak a global pandemic, as of March 11, 2020.
What is a pandemic? According to the World Health Organization, it’s the worldwide spread of a new disease. Read more here.
A day later, Sophie Grégoire Trudeau, the Prime Minister’s wife, tested positive for COVID-19. In response, Prime Minister Trudeau went into self-imposed isolation (although in his press announcement he did declare that “technology did allow me to work from home”).
This isn’t a time to panic — particularly when it comes to your finances. A little planning, even now, will really pay off in times like these and protect you should future situations arise. But how should you financially prepare for Coronavirus?
To help you address your financial concerns, here are 10 steps you can take right now to prepare (or to bolster your response) to the Coronavirus pandemic, and other Mother Nature-inspired events.
How to Financially Prepare for Coronavirus
#1: Emergency Fund
Assuming you don’t have an emergency fund already, you can start by opening a savings account. Every month, contribute $25 to this Emergency Fund Account. Even better, set up automatic payments so that this account is automatically funded over time.
Ideally, you should have three to six months’ worth of living expenses saved in this account. If that seems too much, don’t worry, you can start smaller. Set a goal of $500 to $1,000 — a sum that can help pay for gas or transportation, basic supplies, accommodation (in case you need to leave home), and food.
Having an emergency fund that’s easily accessible is smart to prepare for any natural disaster and especially will help you financially prepare for Coronavirus should you need to access these funds.
Bottom line: Start an Emergency Fund with $500 in a savings account. Grow this fund until you have three to six months’ worth of living expenses saved up.
#2: Consider Cash Flow
One of the most acute financial strains of an unpredictable event, like coronavirus, is the impact it has on cash flow.
This impact can look different to different people.
- It could mean the loss of a paycheque if you can’t work remotely and can’t do your job;
- It could mean job loss, should your employer need to make dramatic reductions in revenue, due to loss of business;
- It could be due to a lack of savings or access to those savings — maybe you didn’t get a chance to create that emergency fund or your bank is closed and the ATMs inoperable.
To solve the cash flow problems you’ll need to:
While a savings account (or line of credit or credit card) can help, it can become useless pretty quickly if the disaster beats you to the bank — a situation that can unfold in a number of ways. For example, bank tellers may be forced to evacuate; electrical disruptions can render ATMs inoperable or you may find yourself trapped at home in either imposed or self-isolation. For that reason, it’s absolutely vital to keep cold, hard, cash on hand.
While there is no hard and fast rule for how much cash to keep on hand, a good start is $500 to $1,000 in different denominations. Again, this is enough to cover short-term travel, or basic necessity purchases when things are most critical.
Remember, to store the cash in a fireproof and waterproof box (aka: a disaster-proof box).
Get a Revolving Credit Account
As you’re building your emergency fund, consider getting a line of credit or a credit card with a higher limit. While both of these credit accounts are poor substitute for an emergency fund, until you save up enough to cushion you, access to this credit can help you in tough times. Just keep in mind that these credit accounts need to be set up before the emergency situation, when there is no rush or panic (and the possibility of more stringent qualification requirements).
These credit accounts can act as a buffer if liquidity becomes a problem, like it did in 2008 to 2010, after the U.S. housing market crash.
Know what government help is available
In response to the COVID-19 pandemic, the federal government announced changes to employment insurance. Those unable to work-from-home and experiencing job loss due to the Coronavirus, will no longer have a one-week delay for EI sickness benefits. This doesn’t mean you’ll get money faster, it just means you’ll receive compensation for your first week off work. Also, the EI sick leave program only provides up to 15 weeks’ worth of financial assistance, to a maximum of $573 per week. To claim and qualify for EI sick benefits, you need approval from a doctor or other medical professional.
For employees forced or who choose to work reduced work hours, the federal government is beefing up the EI job-sharing program — which can supplement a worker’s income.
Consider asking your employer for assistance. Uber recently announced that the company will be providing financial assistance to any driver diagnosed with the coronavirus. Ask around and you may find other employer’s stepping up with assistance.
For employers struggling to keep business afloat until things settle down, consider applying for financial help through the Credit Facility fund that was announced by Bank of Canada’s Stephen Poloz and Federal Finance Minister Bill Morneau on March 13, 2020.
Bottom line: Keep cash. If there’s time, apply for a personal or home line of credit or get a no-fee, higher-balance credit card.
#3: Keep Hard Copy Account Information
Beyond savings and cash, your foolproof plan should include keeping personal records, financial records and other documents at hand. Store these important documents in your disaster-box.
Not sure what to keep? Start with bank account numbers (and, if possible, records of current balances); credit account numbers; wills and other legal documents; insurance papers; passwords to online accounts; contact information for next of kin and family members. Remember to record phone numbers for account providers (banks, insurance companies, credit card companies) — you’ll need these to call and notify creditors about late payments or to file claims.
Bottom line: Important documents are critical and trying to get this documentation when services could be unreliable or disrupted isn’t wise. Hard copies keep the information where you need it, when you need it.
#4: Have a Disaster-Proof Box in your Home
While a pandemic may not damage your home, it is still good practice to keep all hard-copy important documents in a disaster-proof place. If you have hard-copy documents on-hand in a protected space, you and your home can withstand just about anything Mother Nature throws at you. It also makes organization, even through imposed or self-isolation, that much easier.
A disaster-proof box means that all items stored can withstand floods, fire or other Mother Nature-inspired catastrophes. An easy option is to purchase a fire and flood-proof lockbox at any home hardware store or through online retailers, such as Amazon or Costco.
Bottom line: A disaster-proof box means that all items stored can withstand floods, fire or other Mother Nature-inspired catastrophes.
#5: Recession-Proof your Budget
Shocking as it may seem, the Bank of Canada dropped the overnight rate another 50 basis points on Friday March 13, 2020. The last rate drop was a mere two weeks earlier. This was a sharp reminder by the BoC that banks and other lenders need to make debt cheap, in order to stimulate spending.
It’s also a reminder that these actions only occur if economies are struggling. Yep, the R-word is back. To protect your finances, you now need to consider preparing for rough times ahead.
The basics for doing this are as follows:
- Avoid major expenses
- Spend less
- Increase your savings (or pay down debt)
- Earn more
To protect your finances during this economic downtown you need to reduce spending and avoid any new purchases. Go one step further and increase your savings either by socking away money you saved through cost-cutting, or because you took on part-time work. The larger the gap is between what you spend and what you earn, the more time you have before things hit a critical state with your finances.
Bottom line: Reduce spending and increase savings. Now.
#6: Protect Your Savings
Money under the mattress isn’t the best way to save, which is why many of us contribute to registered savings plans, such as RRSPs, TFSAs and employer-based pensions. But in tougher economic times, it’s also important to protect what we’ve already saved.
The first step is: Don’t Panic!
5+ years away from retirement: If you’ve been investing regularly in a registered plan, like the RRSP or TFSA (or RESP and RDSP) and you have a decade or more before retirement, then you’re on the gravy train. Why? Because you have the advantage of time. Most experts are confident that anyone five or more years away from retirement has ample time to recover any paper losses. So, regular investors need to stay the course, invest the plan and change nothing (with one notable exception, explained shortly).
Here’s the exception: For those with five or more years until retirement and with a stronger stomach for risk, if you’ve got money, the markets are now on sale. That doesn’t mean you should rush to buy (truthfully, I did), rather, consider the dollar-cost-average strategy of buying into the stressed equity market. Buy a little today or this week, then a little more tomorrow or the week after, and so on. That way, if stock continues to drop, you benefit from even lower prices (while waiting until for the markets to recover).
Less than five years away from retirement or in retirement: For those closer to retirement or in retirement, it’s time to take a deep breath, as you’re at most risk. At this point, you need to review your financial plan or schedule an appointment with your financial advisor.
You’ll want to review what expenses you can cut, even temporarily, as well as what distributions and dividends (the income you earn from your investments) that you can live off of — the key is to keep yourself from being forced into having to sell your holdings, which forces you to crystallize your losses.
If you’re in the phase of increasing your fixed-income holdings (as you get closer to retirement), the very recent rate cuts and the threat of a recession isn’t welcome news. If you are worried rates will start to decline even further, you may want to consider locking in rates with a Guaranteed Investment Certificate (GIC). As of March 13, 2020, Ratehub.ca reported 1-year to 4-year GICs with rates that ranged from 1.15% to 2.45% — you get slightly higher rates on GICS with 5-year terms or longer. Sure, these rates aren’t fabulous, but these rates are higher than a savings account and could end up looking pretty good if rates continue to tumble.
Remember, no matter what stage you’re in, market volatility is the price you pay for long-term appreciating returns. If you sell, to ‘avoid pain’ you not only capture the loss but you potentially miss out on the expected gains once the market recovers. And it will recover. In the last 12 years, the market has gone through three major market corrections and, each time, the overall result for those that stuck in was a return of ‘lost equity’ and even higher gains.
Bottom line: You’ve only lost money if you sell and crystallize that loss. The key is to review your financial plan and only take steps that minimize losses.
#7: Don’t Panic Buy
One big question is “what to stock up on for coronavirus?” But the answer to that question can require a big, unexpected hit to your monthly budget. Extra supplies = extra costs and, the real question, is whether or not it’s all necessary?
I’m not saying you shouldn’t prepare for a disaster, but panic buying isn’t going to help you or your finances. While, we might feel safer when we follow other people, that doesn’t mean it’s the best thing to do (just consider the plight of the lemmings).
That said, those with a risk for serious illness from COVID-19 need to stock up and take precautions. But those with a higher risk are clearly defined, by the Centres for Disease Control and Prevention (CDC) and it doesn’t include people like me: healthy, middle-aged with no compromised immunity issues. (Nor does it include my kids, who are older than babies and young toddlers.)
For those really in the high risk category, the CDC advises you to:
- Stock up on supplies (such as extra stock of your medications as well as over-the-counter medicine you may require, as well as enough
- Choose to implement social-distance
- Avoid crowds (as much as possible)
- Don’t go on a cruise (or any other non-essential travel)
- If there’s a COVID-19 outbreak in your community, stay home.
For everyone else: Consider creating an emergency kit. Most recommend enough supplies for your entire family for 72-hours; if you’re in a disaster-prone area — like a floodplain or earthquake zone — consider keeping enough supplies on hand to support you and your family for at least two weeks, although there are people that argue a month or even six to 12 months is ideal.
However, most disaster-preppers agree that two weeks in food storage is sufficient, as long as you understand that this doesn’t mean that your cupboards are bare and you have zero food after 14 days. The “14 days” is actually the amount of time BEFORE you would normally go out and get more food. We typically don’t grocery shop once everything is eaten in our homes; we grocery shop when supplies are low. (For a detailed explanation, please read Northwest Edible Life’s incredible blog post: Food Storage for People Who Don’t Hate Food.)
For those that are putting together a disaster food supply kit during the current CORONA-19 event, here are some ground rules and a sample grocery list:
- Only buy what you actually eat. If you don’t like canned mushrooms, don’t buy canned mushrooms as a disaster-kit staple.
- Rotate through your supplies. If you buy these goods today, rotate through them within a year, replenishing the stock as you go.
- First in, first out. That means eat the oldest items (those closer to expiration) first. To do this, you need to date and rotate your supplies.
- When buying supplies, think meals not foods
- Don’t buy glass jars (as these can break during other natural disaster scenarios, such as an earthquake)
- Keep some no-cook meals or meal replacements on the list.
For a family of four, here’s a sample two-week disaster-kit grocery list:
- Rice – 20 lbs
- Beans – 20 lbs dry OR 24 cans
- Canned meats (such as chicken, tuna, etc) – 20 cans
- Canned fruit – 20 cans
- Canned vegetables – 20+ cans
- Soup or stew – 20 cans
- Powdered milk – 1 box OR Shelf-stored, non-dairy milk alternative (such as Oat, Almond or Soya milk) – 16 to 24 cartons
- Cereal – 2 boxes
- Oatmeal – 5 lbs
- Peanut butter – 2 to 4 large jars
- Pancake mix – 10 lbs
- Honey/Jam/Maple Syrup – 1 to 3 large jars (vary the options)
- Pasta – 20 lbs
- Spaghetti sauce – 12 jars
- Salt – 1 large jar
- Olive or other cooking oil – 1 to 2 large bottles
- Coffee (pre-ground) or tea
- Spices and other condiments your family eats (example: oregano, salsa, turmeric, pepper)
- Packaged meals (example: Mac & Cheese)
- Comfort treats (example: chocolate, granola bars, dried fruit)
- Water – buy bottles if you have to, but consider learning how to store water for emergencies
It will cost between $250 to $750 to buy all of these supplies all at once.
Bottom line: The long and short is to approach this economic downtown with more options and the only way to do this is to reduce spending and increase savings.
#9: Take Small Losses for Bigger Gains
You’ve booked travel, what should you do? As of today, this decision isn’t as difficult, when compared to a week or every a month ago, but it could still be difficult. Why? Because not everyone has trip cancellation or trip interruption insurance and even those that do may not have their claim covered.
Booked before the travel advisories: Anyone who booked and bought travel prior to the Canadian Government’s non-essential travel advisories will be covered. For instance, if you booked a trip to Italy before March 12, 2020, and (wisely) chose to cancel, your insurance provider should cover your out-of-pocket costs. For a list of all travel advisory dates, please see the government’s travelling advisories.
Booked a cruise: For Canadians who booked cruises, you will be able to cancel your cruise and get insurance coverage, as long as you booked the cruise prior to the Canadian Government’s March 10, 2020 travel advisory concerning cruises.
The key to getting your claim approved is that the trip was booked prior to the travel advisory and the trip will occur while the government’s advisory is still in effect.
No travel insurance coverage: Of course, not everyone opts for travel cancellation and trip interruption coverage when purchasing travel. If this is your situation, consider other ways you might be covered. For instance, many credit cards now offer trip insurance that includes cancellation coverage. Check car rental agreements or just simply ask the vendor if you can get a refund.
Even without compensation, you should strongly consider cancelling any U.S. excursions. The U.S. President just declared a state of emergency, while our own federal government just issued a blanket non-essential travel advisory for any travel outside of Canada “until further notice.” By travelling anywhere, including the U.S., you increase your risk of coronavirus exposure. You will also need to self-isolate for two weeks upon your return to Canada — time that most people can’t afford to take due to work or family obligations.
While it may hurt, the loss of a few hundred or a few thousand dollars that you pre-paid for your un-insured vacation, may be justified. In the grand scheme of things, this relatively small loss may be better as it prevents you from having to take a financial loss of another kind through self-isolation, potentially missing out on work wages or, worse, risking exposure to the Coronavirus.
Bottom line: Don’t need to travel? Don’t. To minimize out-of-pocket costs, read your travel insurance policy and look for hidden coverage, such as additional benefits from credit cards.
#10: Keep up to date, but take a break
While it sounds cynical, news and information outlets (even the most reputable outlets) measure at least a portion of their success based on page views, number of viewers and number of listeners/watchers. And one of the best ways to ramp up these metrics is to supply information about uncertain or unknown or uncontrollable events. COVID-19 fits this criteria perfectly. No wonder, then, that every site (including this one) has coverage on the Coronavirus. But too much of a good thing isn’t a good thing. Being financially prepared for Coronavirus doesn’t mean constantly checking every news article on the pandemic status…
According to Psychology Today, if you want to manage your depression (and I’ll add in ‘anxiety’ as well), you need to mind your media intake. As the writer, Deborah Serani, explains:
“News programming uses a hierarchy of if it bleeds, it leads. Fear-based news programming has two aims. The first is to grab the viewer’s attention. In the news media, this is called the teaser. The second aim is to persuade the viewer that the solution for reducing the identified fear will be in the news story. If a teaser asks, “What’s in your tap water that YOU need to know about?” a viewer will likely tune in to get the up-to-date information to ensure safety.”
Confession: This article is based on this formula. An upfront tease on what you need to do in order to protect your finances from Coronavirus with the promised answers in the article. It’s not a bad formula, as long as you take it in moderation.
Now, here’s the key: Like other animals, we learn fear from experience, or so psychiatrist and neuroscientist, Arash Javanbakht, explains in this Marketwatch column. This can be a lived experience, such as someone working in a hospital during the SARs crisis; or it can be observed, such as seeing photos of a family stocking up on supplies at the local grocery store because their daughter or husband has a compromised immune system (which puts them in the CDC’s higher risk category for Coronavirus susceptibility). Without realizing it, we are given instructions on how to act by witnessing how others act.
So, if you really want to protect your finances consider turning off the news, allow yourself to stop scrolling and take some steps to get in the moment. I’m not suggesting that we ignore the cautions or hide from the news, but you don’t need 15-minute or even hourly updates on how many people have now been diagnosed worldwide with COVID-19.
Instead, set your scrolling and digest your news at specific times of the day. The rest of the time, get present. If you work, do your job. If you’re a parent, focus on your child. Whatever the task, focus on that or, better still, connect with people you love or care about. Not only will this help you focus on what really matters (those we love or healthy and safe) but it prevents you from moving into a state of anxiety and panic — a terrible state of mind when making financial decisions.
Bottom line: Schedule your news hits; connect and reconnect with those you love and never, ever make a financial decision based on fear.
Get started now
While some catastrophic events are predictable — even hurricanes come with warnings — the impact of these events often leaves us feeling helpless and out of control. A good way to tame and even overcome these feelings is to channel that energy into being prepared — the key is not to go overboard. I say this keenly aware of how, during my first pregnancy, I spent six hours disinfecting my kitchen after watching a CBC Marketplace special on the unseen dangers of salmonella. Fear is powerful; a need to control even more so. But letting go; acting on and trusting your plan and enjoying the here and now goes a long way to making safe, sane and rational money decisions. Hopefully, these ten steps on financially preparing for Coronavirus will help you and your loved ones be prepared.