5 Tips to Manage Money in a Crisis

How has COVID-19 affected your finances? The answer will show how you rate on an important quality called financial resilience.

Has the ongoing health crisis cut back your employment income to the point you can’t manage your monthly expenses without deferring your mortgage and credit card payments? Do you worry about paying bills once the federal government’s COVID relief measures end?

If so, you fall into the category of financially vulnerable, meaning you haven’t been able to save enough to offset your lost income, and will probably cover your spending needs with borrowed funds. This can feel very overwhelming and stressful. I’m here to share some tips to help you better manage your finances during difficult times. 

The goal is to become financially resilient, so you have a savings cushion to help you achieve your goals and sustain your lifestyle despite the curve balls life throws at you.

The good news: according to the Seymour Financial Resilience Index developed by a Vancouver consulting firm, 60% of Canadian households are either financially resilient or approaching resilience. 

The latest index report in February 2021 shows that 27% of Canadians are reducing or consolidating their debt, compared to 18% in October 2020. Almost 30% are setting up or building their emergency savings funds, up from 19% in October 2020. 
When asked if they agreed with this statement, “I want to better understand my household's financial resilience and how I can improve it,” 77% of Canadian survey respondents said yes.

Here are my ideas on how to improve your financial resilience in five steps.

Step 1: Track your spending in detail

• Keep every receipt. Record expenses in a notebook, spreadsheet or free online app (such as Mint, or other top spending and budgeting apps).-Review your monthly bank and credit card statements. Ask your bank about expense items you don’t recognize.
• List your irregular expenses (such as gifts, donations, home and car repairs) that may occur only once or twice a year.
• Total your expenses and sort them into categories. Do this for at least 3 to 6 months.

Step 2: Find areas where you can save money

• Review your monthly bills. Look for mistakes, overcharges, and late charges you incurred.
• Negotiate better rates on your banking, home heating and air conditioning, telecom services internet, TV, phone) and insurance (life, health, travel, car and home insurance). Learn to compare rates online, so you can bargain more effectively.
• Calculate your food costs. How much do you spend monthly on groceries for home cooking, takeout food from stores and restaurants, meal preparation kits and food delivery apps? Try to cut down the last three categories.
• Analyze your needs vs. your wants: do you need to own a home? Can you rent instead? Buy used cars rather than new—or no cars at all? Do you need the latest high-tech gadgets? Look into your closets and drawers at home to find older “must have” gadgets now gathering dust.

Step 3: Decide how to save money in the future

• Do research before buying. Compare the prices of similar products at multiple stores. 
• Use comparison sites for financial services (Ratehub.ca, LowestRates.ca, RateSpy.com). To compare telecom services, check out this list of comparison shopping sites from Canada’s telecom regulator (the CRTC).
• Remember the little things; they add up! Track where your small change is going (miscellaneous fees, delivery costs, restocking fees, sales taxes) and look for suppliers with lower fees.
• Check the subscriptions you signed up for (Netflix, Spotify, Apple, Audible, Amazon Prime, Costco). Make sure you still use these services. Note the expiry dates and cancel well ahead.
• Avoid 1-click purchases when shopping at Amazon.ca. Remove your credit card information and shipping addresses. Creating friction will force you to stop and ask yourself if you can wait and if you really need the items.

Step 4: Invest your windfalls from reduced spending

• Set up an emergency fund. Start small, but save regularly, with the goal of putting away enough to cover your living expenses for 3 to 6 months. Keep the money in a separate account that is hard to tap.
• Pay yourself first. Make saving a top priority. Set aside part of your salary when it comes in and live on the rest. You won’t miss it after a while.
• Put your saving on autopilot. Set up automatic transfers from your chequing to saving accounts every 2 or 4 weeks. Save money from tax refunds, gifts, and salary raises. 
• Make your savings grow. Use a tax-sheltered RRSP or TFSA to save for the long term. Find the best savings rates online (Ratehub.ca, HighInterestSavings.ca, RATESDOTCA).

Step 5: Keep a tight rein on credit purchases

• Limit the number of credit cards you hold. Keep your credit limit low to avoid problems with ID theft and fraud. If offered a higher limit on a credit card, think twice before saying yes.
• Pay the balance in full each month. If you can’t, pay as much as you can before the due date. Set up regular payments from your bank account. Pay more than the minimum.
• Never skip a minimum monthly payment. Credit card issuers can hike your interest rate if you miss 2 to 3 minimum payments in a year. Call the company if you’re having money problems. 
• Check your credit report and credit score once a year to find any problems or errors. With a good credit score, you can get a better rate on loans, apartment rent, and home insurance.

Ellen Roseman is a personal finance columnist and former business editor at the Toronto Star. She is the author of Money 101: Every Canadian's Guide to Personal Finance, and she is Chair of FAIR Canada, a non-profit charity that advocates for investor rights. She has had a long career as a journalist specializing in consumer advocacy and personal finance. Ellen teaches our Investing for Beginners course, and our Introduction to Investing: A Workshop. She will be teaching The Smart Consumer course in spring 2022.