The '4 Cs' of pandemic cash management

What you need to know, from ‘crunch’ to ‘conservation’

Over the past year, the pandemic has put many people between a rock and a hard place financially. A recent survey by FP Canada indicated that nearly 60% of respondents said they had at least one negative financial experience in the last year, while 24% cited an inability to save any money, making it the top negative experience. The self-employed and the unemployed could be near the point of despair as sources of regular income vanish. Retirees, especially new ones, are particularly vulnerable to “sequence of return” risk. Here are the “4 Cs” of cash management for getting through these stressful times:

C1. Cash crunch

Get government benefits. For those who find themselves out of work, especially those with hourly wages or in hard-hit sectors like hospitality, travel, education, childcare, the first step is to take advantage of every form of temporary government wage and financial assistance available, including Employment Insurance (up to $500 per week), Canada Recovery Benefit ($1,000 per week, renewable bi-weekly), and Canada Recovery Sickness Benefit ($500 per week). All of these programs have limitations, restrictions, and eligibilty requirements. Check the government website for details.

Create a tight budget. The first step to get back on track is to assess your financial priorities. Write them down. Lay out your income and spending, warts and all. Start with debt, total how much you owe. This would include, first and foremost, credit cards, which carry the highest interest rate. Don’t forget consumer loans, such as car loans, and lines of credit. Then be sure to control online impulse buying – it’s easy to do when surfing popular shopping sites. But think before you click. As a corollary to this, put your credit cards on a leash: never store your credit card information on a shopping site. Instead, force yourself to enter the number each time you get the urge to place an order. That could give you time to “cool down” and weight whether you really need that purchase or not.

C2. Cash flow

For those in higher tax brackets, who may be working from home, use some of that cash that’s been freed up from reduced expenses to clear out monthly credit card and line of credit balances and end the interest drain once and for all. Or top up mortgage prepayments for the same reason. And your RRSP and TFSA will also thank you financially if you can top them up.

C3. Turning on the cash taps

Those on the verge of retirement have some pretty big decisions to make: Collapse the RRSP now or wait? Start CPP/OAS or wait? Start drawing down TFSAs now or wait? There are major tax and financial implications to each choice, so it’s important to decide wisely. It’s vitally important for those on the verge of retirement to assess “sequence of return” risk. This is the danger that the timing of withdrawals from retirement accounts (non-registered, RRSPs, TFSAs) will have a negative impact on the overall rate of return available to you. And it can have a significant impact on a retiree who depends on the income from a lifetime of investing and is no longer contributing new capital that could offset losses. Withdrawals during a bear market are more costly than the same withdrawals in a bull market. Discuss your options with your financial advisor before making a decision.

C4. Cash conservation

With the COVID-19 pandemic, cash needs have been severely curtailed (vacations, travel, luxury purchases, etc.). This is a golden opportunity to start the savings habit. For example, consider starting an investment portfolio if you don’t already have one. For maximum tax efficiency, use a TFSA or RRSP as a vehicle for these investments. If you’re not a do-it-yourselfer, there are many good mutual funds and exchange-traded funds that provide a one-ticket solution to investment diversification through an actively-managed, balanced portfolio of stocks and bonds. Start now and keep that savings habit going when the economy re-opens down the road.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.