(Toronto) Whether it’s a wildfire-related evacuation, a strike or unexpected illness, experts say Canadians struggling with a short-term loss of income should manage these disruption other than longer term loss of income such as layoff.
“I’ve seen people forgo many short-term expenses, knowing it would only last a very short time,” says Mark Kalinowski, financial educator and counselor at the Credit Counseling Society.
“If you know it’s short and you have a goal for when you’ll go back to work and things will get back to normal, when you’re setting your budget you can say, ‘You know what, I don’t need Netflix this month, I don’t need to go to the cafe to buy coffee, […] for now I can postpone these things.” »
It’s a different strategy than a long-term income modification, when you still need “to have some happiness in your life,” he explains, because you don’t know how long it might take to find your next job. In emergencies, every dollar counts.
Tens of thousands of people were forced to evacuate, leaving their homes and jobs behind, in the Northwest Territories and British Columbia in recent weeks as wildfires raged .
“In this situation, we have a bunch of different stressors weighing on us […] and then we have the financial stressor on top of that,” emphasizes Mr. Kalinowski.
In these types of severe situations, Kalinowski suggests people talk to their lenders about temporarily deferring their mortgage, credit card or auto loan payments once they are out of immediate danger and a little calmer.
When faced with a sudden loss of income, Kalee Boisvert, a financial advisor at Raymond James, agrees that the first step is to cut spending and put savings on hold.
This is also where an emergency fund comes in, she emphasizes.
Meanwhile, unionized workers across the country, including at Ontario’s public broadcaster TVO and Crown Corporation, Manitoba’s auto insurance company, are currently on strike. Until recently, employees of Metro grocery stores in the Toronto area and longshoremen at ports in British Columbia were also on strike. Other unions representing British Columbia ferry workers and Canadian auto workers could also walk out if union negotiations fail.
Typically, unions have a fund to pay workers while they are on strike, but the amount is usually less than the employee’s usual earnings. If the work stoppage continues long enough, there is also a risk that the fund will run out of money.
“If you know the expected period of the revenue disruption, you need to create a budget that takes into account available resources and expected expenses. Even if the duration is uncertain, planning for the coming months can clarify financial options,” observes Ms. Boisvert.
Although the general idea for an emergency fund is to set aside enough money to cover three to six months of expenses, the right size will depend on each individual’s situation. A two-income household without children might need less money set aside for emergencies than a single parent with two children, Boisvert says.
“Even if you don’t have much to save, you shouldn’t worry. You have to start with what you can comfortably manage. As little as $25 per month or per paycheck can make a significant difference over time,” she continues.
Ms. Kalinowski thinks many struggle to save for emergencies, perhaps because they feel like they’re saving for something that might not happen as the rising cost of living eats away increasingly the household budget.
It’s an indicator that many people have difficulty managing their cash flow, the survey found.
However, another potential solution “that many forget,” according to Ms. Kalinowski, is to obtain a line of credit in advance.
“I call it a security credit because it’s a credit that we really have no intention of using, but if something bad happens, it’s there for us,” she explains.
“The trick to getting a home equity line of credit or a personal line of credit – which you’ll never use unless something bad happens – is to apply for it while you’re working and the income is there. »
Ms. Boisvert adds that Canadians facing prolonged loss of income should consider all available resources, including access to investment accounts or retirement plans, if necessary.
“You need to prioritize borrowing options with the lowest interest rates,” she says, “and remember that withdrawals from retirement accounts will have tax implications. »
