The COVID-19 pandemic has halted life as we know it. Daily routines are interrupted, and many people are concerned about how they will continue to make ends meet. Even those whose incomes haven’t been directly affected wonder how they should manage their finances to avoid future financial emergencies. The strategies below will help you gain control of your cash flow to manage income gaps and reduce financial stress.

Target specific expenses

Compare your current finances to your pre-crisis income and expenses. Once you’ve identified any changes, target specific expenses to help bridge the gap by reducing or deferring them through any available relief programs. To start, hone in on expenses that you aren’t able to access right now, like your gym membership or kid’s activities.  Small expenses that you can cut will add up!

Set-up separate accounts

Whether your income has been affected or not, now is the time to separate your day-to-day spending from your financial obligations (e.g. mortgage/rent payments, utilities, insurance, etc.). Separating your expenses will help you manage your spending and ensure that your bills are taken care of without a lot of effort on your part. If you or your family are experiencing any financial hardship, this separation will make it much easier to assess what needs to change to accommodate a reduced income.

Top-up your income

Take great care when using resources to replace your income.  Ensure withdrawals from other resources (i.e. debt or savings) are timed similarly to your regular paycheque. Only transfer what you need to make up the difference, and only as often as you would normally get paid. Withdrawing a large amount upfront puts you at risk of spending more than necessary, and it most likely won’t last as long. 

Order of operations

When your income is affected, it can be hard to know how to safely use your resources to replace your income:

  1. First, if you need them, take advantage of initiatives offered by your institution to postpone debt and/or mortgage payments. A combination of these measures and targeting specific expenses will hopefully work together to bridge the gap. 

    Tip: Make sure you know what your new payment will be at the end of any postponements and request it in writing (most organizations should do this automatically). 

  1. Consider other programs allowing you to reduce or postpone payments (e.g. utility companies, your rent, etc.). As with debt payments, ensure you know what putting off payments will cost you since not all of these programs may be worth it.

  1. If these measures aren’t enough, look to inexpensive debt next, like secured or unsecured lines of credit.

  1. If using inexpensive debt is not an option, or if that resource has already been depleted, draw from your short-term savings.

    Tip: Behaviourally, it's better to use debt before savings to top-up your income. Since you'll likely run out of savings within a matter of weeks or months, using your entire emergency fund could be very hard emotionally and cause you to feel more financially vulnerable than you actually are. If you have several months of expenses saved or are hesitant to rely solely on debt, split the difference between low-cost debt and savings to make up the difference in income. 

  1. Finally, if all other options are exhausted, credit cards can be used. Remember, credit cards should be used as a last resort. Ensure you add those new credit card payments into your expenses.

Save if you can

Saving during a financial crisis may feel like the last thing you are able to do. However, contributing to your emergency fund is more important now than ever. Whether your income has been affected or not, any contribution you can make will be extremely helpful to weather future storms. With so many postponement programs offering 3-6 months terms, you could need access to savings if your income is affected beyond that.