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Managing your money during a global pandemic

A Q&A with Shannon Lee Simmons, Certified Financial Planner and founder of the New School of Finance

What kinds of emotions are you seeing among your clients right now?

There’s a range of emotions. I think the underlying one is nervousness or fear because people don’t know how long it’s going to go on for. I think the uncertainty of the timeline is what is really freaking people out. “Okay, my investments are going down, but is it going down for a few months or for a couple years?” or “Okay, so I’ve just been laid off from my job. Am I laid off for a few months or for a year?” There’s a can-do attitude for short-term pain, but the longer-term implications, we still don’t know what that looks like and that’s scary.

What are actionable things we can do to manage our money during a crisis like COVID-19?

I think that keeping the income tap turned on is the most important thing. It’s the best asset that we all have; it’s future cash flow. So, if you’re still able to keep your job and your wage, that’s amazing. Take advantage of that, cut back expenses where you can, and start saving up emergency savings if you’re able to do that.

If you are in a position where your income has been disrupted, figure out whether or not you qualify for any of the new government programs that just came out. Unemployment assistance programs can help some people so there’s money coming in the door if you qualify.

In addition, you want to be looking at your expenses. Can you take advantage of any mortgage loans or deferrals? Are there other ways you can reduce your spending? There are a lot of breaks different companies are giving, so really take advantage of those programs so you can crack the nut every single month. You want to break even so you avoid going into debt as much as possible.

What are you advising clients about investments?

The strategy here is to not panic and sell everything. If you have a shortfall, and think this will go on for three or four months, then just take what you need. You might be crystalizing a loss, but it could keep you out of debt and you’re still more in control. There’s no crystal ball. We don’t know when the markets will go up or down in those three or four months, so all you can do is make the best decision with the information you’ve got today.

Can you offer some specific advice to:

….new grads or those just starting their first job?

If you’re young, this might be very scary because you’re entering into adulthood. A lot of your options and doors seem closed right now, but you’re young and you have a long working career ahead. I think you can take solace in the fact that this might be a rocky start, but your time horizon is very long and lots of things are going to change. Hopefully, this is a temporary measure and it’s short.

Similarly to what I said before, try to keep an income of any sort, take advantage of any government programs, and make sure you file your taxes. I think that’s a big one for young people, especially if you have tuition credits left over. Not only could you qualify for some of these government boosts that are coming in but you may get a tax refund from your tuition credit and that’s going to line your pockets as well. Stay positive. A rocky start doesn’t necessarily mean that’s going to set the stage for your entire working career.

….the unemployed?

Check out if you qualify for any of the government programs. Income is the most important thing. If you’re unemployed now because you’ve just been laid off, but you qualify for government assistance, that can help to take the sting off.

…someone in their 20s?

Pivot your spending, try to save up an emergency account, and make that a priority. Maybe right now we put [paying] a government student loan on hold because the government just said you don’t have to pay interest on government student loans, so any money that you do have coming in, try to bank a little bit of an emergency account.

…someone in their 30s?

You might be mid-earnings on your career trajectory. If you lose your job it can feel really disruptive and scary for your income trajectory or your business if you’re self-employed. Maybe you have a mortgage. Maybe you have kids [or] car payments. So an income loss is intense.

See if you qualify for some of the new [government] programs so that you can make ends meet. And really pull in the spending.

…those with a lot of debt?

For a lot of people, it’s not possible NOT to go into debt, but you want to make sure you’re doing that smartly. If you have a line of credit and it has a low interest rate, you can do it. I call it a “controlled debt burn.” Have a plan. Let’s say you’re short $500 a month to eat, keep a roof over your head, and basically function with whatever money is coming in. Then you want to only be borrowing $500 a month from a line of credit. You don’t want to be doing it willy-nilly because it’s going to be really easy to spiral out of control, and when all of this sorts out, you’re going to be left with a lot of debt to pay back. Try to avoid credit card debt at all times because, again, interest rates are really high and it’s going to be a bigger hole to dig out of.

What do retirees need to consider during these uncertain times?

Take a really measured approach if you need money. Don’t panic and sell everything so that when the market goes up again you are still investing and fully participating in that. Try to keep yourself out of debt.

If you haven’t already, every year move whatever amount of money you intend to withdraw to pay for your life into a cash-like product so if the markets take a nosedive, whatever you’re going to withdraw in the next year is protected and safe.

Try to get your expenses down as low as possible so you don’t have to take as much from your retirement portfolio if you can help it. Talk to your financial advisor, and maybe it’s time to revisit your asset mix if this doesn’t match your risk tolerance anymore. Also, do more cash-flow planning for future years.

What financial advice can you offer to parents?

I’m noticing a boom in Amazon purchases because people at home are trying to entertain their kids. They’re trying not to go to the store. Online shopping is frictionless, which means you don’t have to stop and hand cash or a credit card over, so it’s really easy for bills to add up quickly. If your income gets disrupted and you have a big bill that you’ve amassed, that can be a bit daunting. One of my tips is to take your credit card information out of the cache on your Amazon page so every time you buy something, you have to actually input the card information by hand. It’s a sober second thought, a moment’s pause. Twenty-four hours later, if you still think that’s an important purchase, go ahead. No shame.

Should parents keep investing in education funds?

If your income is the same as it was before, and you don’t have any foreseeable dip in income that would really rock you financially, or you’ve got an emergency account and you’re in pretty good shape, business as usual. Keep saving. Because if you’re putting money into your investment account at these very low prices, in the long run, that actually might pay off because you’re buying low, and the whole point is to “buy low, sell high”, right?

If you’re a person whose income has been disrupted and you’re going into debt, no. Stop it. We have bigger fish to fry at that point. We need to make sure we don’t go into credit card debt or too much line of credit debt. I have a saying, “Don’t set yourself financially on fire to keep your kids warm.” Let’s just breathe through that.

Since daycares are currently closed, should people still be saving for childcare fees or should they invest that money elsewhere?

Daycares being closed will help bring the cost of living down every month for many because daycare [can be] really expensive. Take advantage of that break in spending to try to bank as much as possible or break even to avoid going into debt. I think saving it for a rainy day is what you want to be doing in the short run, and once we know how this is all going to work out, you can choose whether or not it goes to offset next year’s [childcare fees], pay off debt, put money into an education savings plan. But, in the short run, just hoard it. If you don’t have a bill and now there’s a bit of a surplus in your account every month, save it or pay off debt.

With all the conflicting information out there regarding recent market volatility, who should we listen to and trust?

It’s easy to get freaked out [when] everyone has an opinion. Choose one resource that you trust, hopefully it’s a trusted financial planner who is accredited and knows the situation. Trust their advice, because that’s what’s customized for you. Block everything else out because it’s noise. Have faith that stock markets have rebounded from The Depression, the 2008/2009 crisis, SARS, and H1N1.

Anything else that might calm anxiety around our finances at this time?

It’s a scary time, so I think the best thing to do is remember that the short and long game are two different beasts. What’s happening in the next three to six months does not necessarily mean that the long game is completely different. It’s like if you’re going on a road trip and you have a flat tire. It’s a really scary moment, but it doesn’t mean you’re not going to get to the destination.

Shannon Lee Simmons is an award-winning Certified Financial Planner, speaker, Chartered Investment Manager, author, and founder of the New School of Finance. Her two books, Worry-Free Money and Living Debt-Free are best sellers. She is a personal finance writer for the Globe and Mail, CBC Radio’s Metro Morning money columnist, and financial expert on The Marilyn Denis Show.