If there’s one thing we’ve learned from the coronavirus crisis, it’s that a financial crisis can strike when you least expect it and how important it is to be prepared.
According to a recent survey, three in four Canadians are experiencing financial stress due to COVID-19, with nearly 30% of respondents reporting “extreme stress.” With mass lay-offs, plunging stock markets, and businesses closing across the country, it’s a scary time for everyone.
If you’re feeling the pinch from COVID-19, your best defence is to make sure you have enough in the bank to cover your basic expenses. Start by tackling the “911” items on your crisis-mode checklist, like applying for government financial assistance, deferring your mortgage payments, or consolidating debt. Once that’s done, it’s time to take care of other critical life things to protect your financial future – some of which you may have put off for ages. From getting life insurance to securing your investments, this article is all about how to protect your financial stability during COVID-19.
1. Get Life Insurance
Although most people who get infected with COVID-19 recover, elderly people and those who have existing health issues are high-risk for complications or even death from the disease. While it seems surreal to imagine dying from coronavirus, you must be realistic.
Regardless of the current pandemic, it’s a good idea to have life insurance. Even if you get some life insurance through your employer, it might not suffice in covering all of your family’s needs. Should you pass away, life insurance policies help ease the financial burden on your loved ones after you’ve died. The death benefit (or lump sum payout) can be used to replace your income so your family can maintain their current standard of living. It can help pay for funeral expenses, cover debts, pay off the mortgage, or even be given to your children.
With the global pandemic, you may wonder: does life insurance cover COVID-19? Generally, life insurance covers all types of death (except suicide), unless there is a specific exclusion included in your policy. As long as you keep paying your premiums, the policy will pay out the full death benefit if you die from the coronavirus.
Thanks to newfangled technology, there’s no need to go into an office and consult an insurance agent. The best life insurance companies in Canada can give you a quote and help you set up a policy without even leaving the comfort of your couch.
2. Make a Will
Everyone needs a legal will. If you die without a will, the provincial or territorial government decides what happens to your assets and dependents, leaving your family to sort out a whole lot of financial messiness. Let the coronavirus crisis be your excuse to make a legal will ASAP.
Given that we’re confined to our homes, visiting a lawyer’s office right now isn’t an option. Luckily, it’s not necessary: with Willful, you can make an online legal will in under 20 minutes for as little as $99. It’s ridiculously easy: just answer questions in a step-by-step questionnaire, and it will populate the legal will template with your answers. It’s kind of like the TurboTax of legal wills. Just note: your legal will must be printed out, signed, and witnessed in order to be considered valid, so don’t leave it lingering on your desktop.
3. Make Safe Investments
The pandemic sweeping the globe is hitting the stock market hard. While some investors stand to profit from the market downturn, other Canadians may not be in a financial position to invest their life savings. In this case, look at low risk investments, like a Guaranteed Investment Certificate (GIC) — a type of investment that pays a guaranteed interest rate. GICs are one of the safest investments that you can make and can be held in both non-registered and registered (TFSA, RRSP, RESP, RRIF) accounts. The best GIC interest rates are relatively higher (think 2-3%) than a high-interest savings account, ensuring that your hard-earned money grows and isn’t eroded by inflation. For instance, EQ Bank currently offers a 5-year GIC that pays 1.80% interest.*
Investing in a GIC is easy: just deposit the money into a GIC account and get an annual interest rate. The catch? Unlike a savings account, a GIC is usually “locked-in” for a specified term (usually anywhere between 30 days and 5 years). However, there are redeemable GICs, allowing you to cash out (without any interest payable) if your situation changes.
4. Start an Emergency Fund
With the economic crisis triggered by COVID-19, it’s more important than ever to have a well-stocked emergency fund. Make it your mission to stow away at least 3-6 months of expenses for emergencies. That means if your basic cost of living is $2,000/month, aim to save anywhere between $6,000 to $12,000 in a “911 fund.”
But where should you stash your cash? Your best bet is to open a high-interest savings account, which gives a decent interest rate while making your money easy to access in case you need it. The Savings Plus Account is a good choice: the everyday interest rate is 1.25%*, which is one of the highest in Canada. It also offers no monthly account fees, free Interac e-Transfers® and bill payments, and free day-to-day transactions.
*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
5. Make a Financial Plan
When you’re stuck in the middle of a financial crisis, it’s hard to see the forest for the trees. You might think that financial planning isn’t a priority – but it is! Setting short, medium, and long-term goals and charting out a path to achieve them is essential to securing your financial future. If you are experiencing financial distress because of the COVID-19 outbreak, creating a financial plan may be just what you need to get your finances back on track.
The financial planning process involves scrutinizing how much money you have right now, how much you’ll need in the future, and what you need to do to reach your short- and long-term objectives. This can include creating a COVID “damage control” plan, tackling things like paying off debt or deciding what to do about your mortgage.
There’s no need to pay a pro to do this for you – you can make a financial plan in seven easy steps. But if you need help, download an app like Pocketsmith – a financial planning app that tracks your spending but also helps you set goals, monitor your net worth, test different financial scenarios, and estimates how much you’ll need to save for the future. It can even use your current financial information and trends to forecast up to 30 years in the future.
Staying financially fit in the middle of a crisis isn’t an easy task. Regardless of your age or financial circumstances, make saving and investing a priority. Creating an emergency fund is one thing you can do to protect yourself from unexpected financial pressures.
Another thing you can do is start investing. With stock market crashes, many anxious investors are jumping ship and “panic-selling” their investments, making this a prime time to scoop up stocks “on sale.” If you’ve got investments, keep ‘em, and think about whether now is right time to buy more stocks. Investing is easier than ever, thanks to low cost online brokerages like Questrade and Wealthsimple Trade, as well as robo advisors like Wealthsimple. Now is a great time to sign up because Wealthsimple is offering Young and Thrifty readers an exclusive deal: get a $100 cash bonus open and fund your first Wealthsimple Invest account (min. $1,000 initial deposit).
However, we understand that not everyone can afford to invest in stocks right now. Many Canadians are just struggling to pay their bills and put food on the table. Make sure to take advantage of the government COVID-19 financial aid and make paying off debt a top priority. If your financial situation is uncertain, consider putting aside some savings in low-risk investments like GICs, or into a high-interest savings account. That way, your funds are accessible but still earn decent interest. Just contribute what you can right now – even if it’s only $50/month — because it can be a lifesaver if a money emergency strikes.
Lastly, don’t forget to tackle essential life stuff, like life insurance and making a legal will. Yes, these tasks may feel unpleasant and morbid, but it’s critical to protecting your financial foundation. And that’s worth paying for, even without a pandemic.
Disclaimer: Young & Thrifty has entered into a referral and advertising arrangement with Wealthsimple US, LTD and receives compensation when you open an account or for certain qualifying activity which may include clicking links. You will not be charged a fee for this referral and Wealthsimple and Young and Thrifty are not related entities. It is a requirement to disclose that we earn these fees and also provide you with the latest Wealthsimple ADV brochure so you can learn more about them before opening an account.