The idea that we’ve collectively been thrown a personal financial curveball is an understatement. During this unique and challenging period, as your financial advisor, I am here to help provide you with guidance and options as we all adjust to the current environment.
For now, we want to share a few concepts and ideas that may help you with your personal finances and plans over the coming weeks:
Certain wisdom is timeless. Eat well, sleep well and get some exercise. Go for a walk. Do an online yoga class. Distract yourself periodically with a good book, a movie and hobbies. Your overall health is the most important goal to focus on – keep things in perspective.
It’s a good time to review the recurring expenses billed to your credit card and any regular debits automatically made to your chequing account. Look for any opportunity to stop or reduce costs if that makes sense for you. Reduce discretionary spending. Prepare homemade meals which are less expensive and healthier.
There may also be an opportunity to review your mortgage and look strategically at its current term length, consider an early renewal, or blend and extend options that may improve your repayment terms.
Sources of Cash Flow
Monitoring your cash flow is an important part of financial stability. If you have extra cash flow at this time, consider setting these funds aside as savings. It’s important, when possible, to build flexibility into your plans.
If you need additional sources of cash flow, there is a wide range of options for you to consider, depending on your circumstances.
- Logically, a Savings Account is a good place to consider first. A TFSA can also be a source of short-term funds, depending on how it has been invested.
- A Home Equity Line of Credit can provide access to funds. It gives you the option to pay interest only in the short term and repay the principal as things improve. The Prime Lending Rate has been reduced to 2.95%, and most Lines of Credit are based on Prime Rate plus a small premium.
- Certain types of life insurance may have a Cash Surrender Value, which can be used to take out a policy loan. In most cases, cash proceeds are tax free and loans carry a low rate of interest.
- Canada's banks and credit unions have announced new options for borrowers. This includes temporary relief from certain payments like mortgages, lines of credit, loans and credit cards. We can discuss the best way to approach your creditors to secure the most benefit for you.
- Accessing cash through credit cards (which carry high interest rates) and your RRSP accounts are usually the last places that should be considered. In virtually all instances, RRSP withdrawals should be avoided as they come with tax consequences and the loss of future compound growth.
Support through Government Programs - Recently Announced Changes
The federal and provincial governments have recently announced several new programs and changes to procedures, including changes to the availability of Employment Insurance. Depending on your situation, this can provide some assistance.
Other important support measures include the deferral of tax filing and the payment of tax installments. This infographic provides a good summary.
Part-time and Summer Jobs
It's likely that older school age children are experiencing impacts to their current part time and any planned summer employment. This may be an opportunity for them to work around your home tackling small (and safe) projects. If you have kids affected by a loss of part-time or planned summer work, consider having them look into online courses.
Think constructively. There may be opportunities to review certain strategies based on your longer-term goals and personal circumstances.
The current environment may create an opportunity to strategically leverage certain capital loss positions to help reduce taxes. Certain assets, including securities that you may intend to gift to others, may now have reduced capital gains. Gifting assets during your lifetime can shift future capital gains and income to your beneficiaries and move these assets out of your estate, in turn, reducing taxes and probate costs.
Modifications to portfolio asset allocation, which may have been on hold due to the realization of significant capital gains, can be reviewed.
Investors with access to cash holdings intended for eventual investment, can consider opportunities to make investments while prices for certain securities are significantly lower. There may also be opportunities to buy into the current volatility and take advantage of dollar-cost-averaging.
We’re here to support you. Creating a stable and flexible financial situation is achievable. Please contact me with any questions you may have. We can work together to put in place a range of different solutions that make sense for your personal circumstances.
Disclaimer: The above should not be construed as tax planning advice, as each individual’s situation is different. Please consult your own tax planning advisor. Investment Planning Counsel Inc. is a fully integrated wealth management company. Counsel Portfolio Services is a wholly-owned subsidiary of Investment Planning Counsel Inc. Trademarks owned by Investment Planning Counsel Inc. and licensed to its subsidiary corporations. Mutual Funds available through IPC Investment Corporation and IPC Securities Corporation. IPC Private Wealth is a division of IPC Securities Corporation. IPC Securities Corporation is a member of the Canadian Investor Protection Fund.