The COVID-19 outbreak has presented a seemingly unlimited number of challenges.
First and foremost, of course, is the health risk itself, and we salute the health professionals, caregivers, researchers, and front line workers engaged in combatting this threat.
The virus has also affected our financial health and has exposed the state of our individual financial plans.
An Emergency Fund
The sturdiest defence that a well-structured plan presents to such a threat is the first step in planning – an emergency fund. This is the tried and true 3- to 6- months of income set aside in some mix of high daily interest accounts and/or cashable GICs.
The point here is not “return”, but “liquidity”.
Unfortunately, an emergency fund is often an overlooked aspect of financial planning. It lacks the cachet attached to retirement planning, and few people will be bragging around the – now most likely virtual - watercooler about the huge amount they made in a savings account.
That said, if you had six months of income in an emergency fund on March 13, it would have been sufficient to see you through to October. An important point to mention in this area: a line of credit is not an emergency fund! Yes, it will provide for emergency cash flow and is better than nothing, but it is debt that must be repaid.
On the subject of cash flow, a situation such as COVID-19 underscores the importance of having a budget. Having established a budget before the pandemic makes it easier (not to be confused with “easy”) to identify priorities and potential economies going forward, should cuts to your budget be required.
Moving forward, the budget is the bedrock document that will not only document expenses (including money targeted for savings and investment) but helps you determine the amount of productive debt that could be taken on to help you achieve your financial goals.
We have seen over the past few weeks that the virus has affected people in all age groups, admittedly some more than others. The consequence in some cases has been fatal.
- Before the pandemic, what was the state of your life and health insurance coverage?
- If you do not have group health and dental benefits in place, do you have sufficient individual coverage to cover expenses not covered by the government?
- When was the last time that you reviewed your life insurance coverage?
- Do you have enough life coverage in force to cover your final expenses, including income and capital gains taxes at death?
- If you have a spouse and/or children, have you ensured that at least some portion of your income will be replaced to see to their needs?
The virus puts a renewed focus on estate planning, starting with the most basic question: do you have a will? I return here to a point from the previous paragraph: COVID-19 is age agnostic, which emphasizes the point that it is not just “older people” who need a properly drawn will.
Regardless of age, if you die you will have an estate and however modest it may be, you want to ensure that your wishes are implemented by the person you feel most capable of doing so. For families, a will has not only financial implications: it is the vehicle that will assign guardianship for children.
Finally, because of pandemic precautions, we have seen heart-wrenching situations where people have not been able to grieve the loss of loved ones collectively in the traditional manner.
As we struggle towards an acceptable alternative, an important aspect of estate planning may offer some help: the disposition of personal effects. You might be surprised to know how important a seemingly insignificant (to you) item is to someone you love. It might remind them of a conversation, an event, a feeling, perhaps even just a moment.
Indeed, the item to that person will be worth many times more than any money you are leaving them. Take a walk around your house with an estate planning eye. Even better: do not be afraid to ask those you love what they think.
What state is your plan in? Do you have a plan? Contact your Scrivens Advisor for a discussion – and move forward with confidence.