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Cash Flow Clinic Transcript
Kathryn Mandelcorn (KM)
0:16 Good afternoon everybody, everybody’s admitted in, we are recording this call. So welcome to the Spring Financial Planning Cash Flow clinic. I’m Kathryn Mandelcorn, I’m the Director of Cash Flow Strategies at Spring and Karen Richardson, our Associate Financial Planner and Certified Money Coach, is also joining us. The purpose of this call today is to speak about cash flow specifically.
KM 1:00 Darryl Brown, our Portfolio Strategist, he held an excellent market update call two weeks ago that is available on our website as well. We are planning on building future calls around financial planning. We are going to take questions at the end, but you can actually direct questions in the chat box in Zoom and you can send them directly to Spring plans. So it’s done as a private message and Karen and I will be answering those questions after we talk here at the beginning.
KM 1:46 In light of COVID-19 these are really, certainly unprecedented and uncomfortable times. I know there are a lot of emotions that are changing day to day. There’s a general feeling of lack of control. Especially around personal finances. For clients, you know that having a plan does not safeguard you from all life and world events. Those with a planner are not necessarily going to be vastly better off than those that didn’t. So we are not here today to tell you that since you have a plan you will be totally fine. There was no cash flow line item for pandemic. But having a plan does provide a feeling of control. A feeling that you are going to take action and steps to make your life a little easier, just like all the things happening around you. You can create a plan for your money today despite all that upheaval.
KM 2:43 I know some of you have been temporarily laid off. Some of you are working from home, some are retired and using pension funds, some others are self employed. All of you are facing the uncertainty of what lies ahead. We also have clients that are on the front lines of essential health care services, which we greatly appreciate and acknowledge the challenges they are facing every day. We at Spring are running a small business with contractors and employees, and we have family members who are self-employed. I understand how this may be impacting everyone. So whether you have a Spring Cash Flow Plan or not, we have some strategies that you can take action on.
KM 3:25 The goal of the call today is to help you feel ok about your money. We know that it’s going to be changing, often, over the next few months. The goal is to learn how to use your savings or credit, and the benefits that are available in the most effective ways possible in the coming months. So the first part of this call I’ll be sharing some general actions and recommendations, and in the second part, Karen is going to share some specific actions you can take with your Spring spending and savings plan. Then we are going to take some questions.
KM 4:10 So i’m going to start with your expenses. The reason I start with your expenses is because no matter what is happening with your income right now you will still have expenses that you will have to pay, whether it’s fixed bills, groceries, that sort of thing. Know what all your fixed expenses are, and are there any you can reduce or eliminate right now? Perhaps a subscription you’ve been meaning to cancel for a while. Now is a good time to get it done. Do you have debt payments or mortgage payments, or both? If you’ve lost your income, you can request a deferral payment from your lender. We are going to speak more about income benefits in a moment.
KM 5:05 The second part of expenses is, determine what you or your family needs including other essentials. This is going to change over time and it will likely be low over the next few weeks while we are all in isolation. But what I want you to do is try not to think of what you have left over, let’s say you have $100 left after paying your bills from your reduced income. It’s not a realistic amount to spend on food for the month, so don’t think of what you don’t have right now, but concentrate on what you need for this first part. So determining what you need to live off of.
Rob Carrick mentioned having a wartime budget in an article this morning. He’s not wrong. So thinking of what you need first before determining what your income is. For others you may need money for gas and other transportation. So determine what you need for that. But there’s also the fixed annual and quarterly bills. You will still need to pay your water bill, your property taxes. There may be some programs in place to defer those. For now assume that they still need to be paid.
So calculating the total of all these bills, divide them by your paydays, if you don’t have pay days at the moment then divide them monthly. Or if your income hasn’t changed then this is a good time to put your money aside for use for any lump sum expenses. So I started with expenses, which is for items there to think about. Now these are general expense categories. You or your family may have some other essential expenses. Factor those in for sure. These are just general guidelines.
KM 6:44 The second part I want you to look at is income. If you don’t have a change in income this is good news. It may be temporary, it may be ongoing. But if your income hasn’t changed, you likely will be able to use this time to save any surplus income in an emergency account. Or perhaps save for some of those lump sum expenses that may be coming due, such as property taxes.
If you are paying yourself with income from your business, review the expenses that I mentioned previously, your personal expenses. Perhaps, pay yourself a lower amount. You may run out of operating capital in the business at some point in the next months will certainly apply. I know on a personal note with my husband’s business, we are reducing his income draw temporarily, so that we can reduce the pressure of operating capital on his business because there will be no contracts for the next few months. We don’t know for how long. Having a plan for that is helpful. So if you’ve been laid off and qualify for EI or some of these other benefits, it may not cover all your regular expenses.
KM 8:14 It was announced today that there is a Canada Emergency Response Benefit (CERB) of $2,000/month. This benefit is replacing the former proposed Emergency Care Benefit, and the former Emergency Support Benefit. You can find the links to all benefits and resources on the Resource tab on our website at Springplans.ca. So if the EI or CERB do not cover even the reduced expenses, then you may need to supplement your income from savings or by using credit. In order to have some control over the use of savings.
If you’ve got emergency savings, you may not want to dwindle all of them. But to have some control with the use of your savings and credit, we recommend that you determine what your expenses are each month, what you need to have. Then determine your shortfall in income and then supplement your income with money from savings, credit, some of these benefits, or combination of all three. Plan in advance how much you will need and commit to living off this amount. Things are going to change perhaps monthly. So your plan may need to change monthly, but try to plan in advance as much as you can. Avoid the use of credit cards to supplement income if at all possible.
KM 9:50 A quick example, these are just made up numbers, but if your necessary monthly expenses are $4,000/month and benefits will only cover let’s say $1,700 after tax, then you are going to need to use savings or borrow $2,300/month until your income returns to normal. Now the advantage of this is that you know exactly how much you’ll have until your savings are used up. Or how much you’ll go into debt by. Is it ideal to go into debt? Do people feel good about using debt? No. But is it a reality for many right now? Absolutely, and I would rather you go into debt systematically or you are saving systematically, than haphazardly assuming in the greater sense of control and peace of mind.
We don’t know what the short term or long term impact is going to be. So it is important to do the best you can to be intentional with the use of benefits, your savings and your credit right now. I know there is so much information out there and it can cause a lot of stress and anxiety. I give this advice under all circumstances, focus on your values, try to cut out the noise as much as possible and make a plan that’s going to serve you. There are several benefits being made available by the Federal Government and from banks and mortgage lenders. These will all be a valuable resource for many of you.
I give this advice under all circumstances, focus on your values, try to cut out the noise as much as possible and make a plan that’s going to serve you.
If you are confused as to what you qualify for or what benefits to apply for, I recommend first determining what you need so that you can make an informed choice for which benefits to use, and then how to move forward from there. Keep in mind that you may not need benefits right now, but might want to think about the long term as well. You may not want to drain all your savings if you can have some subsidy. So do what you need for yourself and your family right now. If you need support I encourage you to speak with your advisors to help you. Often a conversation can help ease your worries significantly.
KM 11:57 So those are the general recommendations around Cash Flow. I am going to pass it over to Karen, she is going to talk about specific changes and recommendations that you can make to your spending and savings plan. Then we will take some questions. Karen over to you.
KR 12:19 Thanks Kathryn, so hi everyone, thanks for joining us. Some of our clients that work with us are familiar with the term spending and savings plan. Really it is a type of budget, a plan that we outline for our clients, to help them organize their expenses, organize their income and reach their goals. Once you have spent some time tallying your expenses and you know how much money you have coming in, I think it’s a good idea to look at some of the strategies that you and your family can live on and so start to build an austerity plan. It doesn’t mean that this is how you need to live forever but it is just going to help reduce some of the stress you might have going on.
If you know you can sort of make it by cutting a few things out, I think it could be worth looking at and doing so. Look in your fixed expense category, see if there’s any expenses at all that you could be putting on hold right now. Some examples might be some subscriptions, like Kathryn said, extra cable that you pay for. I’ve noticed that some utilities are allowing deferrals. Provinces are offering lower rates on utilities, so it could be good to use those benefits and save some money there. Consider contacting some of those companies that Kathryn had mentioned. Like the banks about deferral payments, just so that you can look ahead. I think it’s really uncertain times and we don’t know how long this is going to last. So we have to think, we don’t want to think about our family getting sick, but all of these things could be a domino effect that could keep you off work or without income for longer. So if you feel you don’t need those types of things right now, maybe utilizing some of them will provide you with more of an emergency buffer. To have for the future. Just because we don’t know what’s going to happen next.
KR 14:41 So then after you’ve sort of figured out with your fixed expenses, you know all of your payments that you can’t change too much, but you might be able to put some on hold or do without some. I think it’s a good idea to review your monthly spending and groceries, like Kathryn had mentioned. I think that for most people, this category of expenses, your entertainment, all of the money you spend between pay cheques that’s somewhat variable. You know, your beer and wine, your going out for dinner, your socializing money, is obviously going to be a little bit lower. So I think coming up with an amount that you can rely on each week and try to keep it the same will help you feel more in control around your finances. So that should ease up some cash flow for you. You would definitely have some time on your hands, so things like meal planning with your family, will definitely save you money as well as thinking about grocery ordering online, once a week and not going to the store as frequently should overall save you money.
KR 16:01 If you’ve been a client with us, you have what we call a savings bucket or what can be a separate savings account for things like travel, annual expenses, clothing, those types of things. When you are looking at building an austerity plan, I think it is important to think about things you may not need to transfer money to at this point. People aren’t travelling right now, so you could put that transfer on hold. The same applies for purchasing clothing or needing to purchase clothing. This may not be a priority at the moment, most of us aren’t paying for haircuts, so look at those expenses. This could really help you go a long way in the income you need each month if you don’t need to have money for these items. Some of the bigger payments like insurance, like Kathryn spoke about, or annual bills that are coming up, I think it’s important to make sure that you have those marked in your calendar. If you have a big annual insurance payment coming up, do what you can to get that money sorted. It’s definitely a bit of a priority, and if you are not able to do it, then I encourage you to contact the person that you owe the payment to where it’s ICBC or your insurance agent and just look at seeing what they can do to help you out with that. Maybe you can go on to a monthly plan instead of owing the annual amount. It’s hard to know.
KR 17:35 You may not need as much for gas, so it’s important to have some money aside for emergency vehicle repairs but definitely gas could be lower for your family. As well as your house account for maintenance and things, though I have to say I have been getting my husband to do quite a bit of maintenance around the house, but this could be an area where you could save money if you needed to.
Overall I think there are definitely those insurance benefits that are going to be available. It’s a great place to look on our website. I definitely would contact the government or look up their resources on their page, it’s the best place to go for that. Then again if you are eligible for some of those benefits, I think building an emergency fund right now could be super valuable. We just are really uncertain about the future. Having some extra funds saved will definitely go a long way to help you feel less stressed just because we don’t know what’s happening next.
KM 19:03 I know we have some questions sent in, but if you wanted to type in any questions you can direct it to everyone in the chat or if you want anonymity you can send it directly to Spring Plans and we will see those questions. Karen, do you have answers to some of the ones that were sent in ahead of time.
Questions from Participants & Canada Emergency Response Benefit (CERB) Links
KR 19:25 Sure, so we had a couple of questions sent in ahead of this clinic. We had one question regarding investments around timing the markets and things like that. Our portfolio analyst, Darryl did a great market conditions call and we’d like you to head over to our resources page to access all that information, because it’s all about the markets. I’m going to defer that one. So if we are retired but self-employed, as a self-employed contractor, earning $5,000/year in 2019, can we apply for EI? And is there federal support for yourself? Again I think I’m going to defer that over to the government resources or the resources on our page.
KR 20:18 We have a question here about will credit card companies defer payments? It’s something I recommend people contact their specific credit card company for. It’s hard to know on a broad scale if they are all doing that, but I think that everyone is…all the companies are doing their best in doing what they can. So I totally encourage you to call.
KR 20:41 We have another question about how the mortgage deferral will work and how to pay that back. And again the same as the credit cards because all the banks and different mortgage companies are working differently. I totally encourage you guys to reach out to your current company that you have your mortgage with and contact them directly and ask about your specific situation.
KM 21:10 We’ve got a question for chat from Tony, self-employed, and not sure benefit will qualify for things seem to be changing quickly, like a new one came out today the CERB, do refer to the CERB but that is looking like that one is going to be in place now for those who are self-employed and it’s being offered for four months. There is a list of details there on the CERB so that’s what you’ll want to look at. Go ahead Karen.
KR 21:51 I was just going to say I did read from an accountant that is also going to be a taxable income. So $2,000/month for 16 weeks and it is going to be taxable. So put some money aside for taxes, don’t spend it all.
KM 22:09 Tough times and I’ll come back to yours, Ken, that was a private message – there’s a message saying you are self-employed and don’t have EI are you eligible for these benefits? Yeah that is with the new CERB benefit, if you weren’t paying into EI and are self employed, that is something you will qualify for, or should be eligible for I should say. And the application portal is coming out early April for this new benefit and they are saying payments will be sent in about ten days after that portal is available, but we just don’t know when it’s available yet.
KM 22:56 There was a question about understanding the CERB, is it only eligible for those not able to make income, and does it apply to dividends? Would it be a good idea to move from salary to dividend to interim to maximize the subsidy? That is a great question, I am not sure I think that is something to look into, again, with the government guidelines. But if you mean taking a dividend from your corporation as income, it should hopefully qualify, but I don’t have an answer for that. There should be information in the link.
KM 23:52 There is a question here, I have a corporation and am the only employee, do I need to lay myself off first to qualify for benefits? From what we understand, no, again because it is so new and out today from what we understand, there are several guidelines on that Canada Emergency Response Benefit. So have a read through the link on that free resource page. Have a read through and determine if you think you qualify. Then you can attempt to apply through that portal when it’s available. I hope that helps. I know there are alot of questions around these benefits right now and because they are ever changing, we recommend going to the government’s website to keep on top and abreast of the changes.
KM 25:11 Another question here, is it better to apply to personal support or corporate support so that I can keep paying myself. Karen?
KR 25:22 Potentially both, yeah, I think they both are two separate silos. I think it’s as your company, you should be looking directly at the resources for the corporations and then as well as personally you are affected. So speaking to a planner, definitely take advantage of that. Of course it depends on your situation, talking to a planner will help you out.
KM 26:02 There are some other questions on the, I know I cut you off early to answer some of these immediate questions.
KR 26:11 Some of them are very government orientated, I am not sure we know all the answers. One was around, you’ve been ordered to close your business, does it mean the government will help keep the business afloat? And where do we get access to any benefits? I think the corporation page on CRA there are quite a few resources there for that. So have a look there.
KM 27:24 So going back to that free resources page, if there is anything of value to add to it we will be, the government website will be updated obviously as things change with them. There was another question that just came in. Do you recommend deferring payments, property tax and mortgages even if you can handle it right now? That’s a great question, we were talking about that through the Cash Flow portion of it, in that if you don’t need to at all and your income hasn’t changed, and you don’t anticipate that it will. Then no you may not need to defer payments. Knowing what the impact of that would be to you, is important. But Karen, you made a good point that things may change and you may need money for bills concerning the impact on your savings and how long you have savings for? How long do you have access to credit for? So you may need to look at deferring some of those payments. And understanding what deferral of your mortgage payment means. Yes interest can accumulate, but is the impact of it now worth doing it? Maybe. Really coming back to working out what you need right now, what works for you and your family circumstances and then determining what benefits and what solutions you need to apply for or put into place.
KR 29:04 You would just hate to need those benefits three or four months down the line and then have them not be available. That’s the only thing. It’s really good to look at your emergency fund and make sure you have a good buffer.
KR 29:25 There’s a question here, is it a good time to consider buying a house or property? Kathryn?
KM 29:34 Is it a good time, kind of like a market question too isn’t it? I can’t answer that. If you needed to buy a home now, anyway…maybe! Maybe it is, but to speculate, no, it may not be, but again we might need some more information around that to be able to answer that better. Can’t give a definitive answer on that one but, thank you for that question
KM 30:50 Ok, thank you so much for taking the time today to listen to us, to ask your questions, you may have more questions as time goes on. We will see what we can do to perhaps offer other calls in the future to answer these questions. Otherwise please reach out to your planners, your advisors for any support and advice as we all navigate these times. Ok thank you all
KR 31:27 Thanks very much, bye bye
End Recording 31:38