When a global event or crisis disrupts the market, it’s natural to worry about your money. Thankfully, there are things you can do to increase your peace of mind during times of uncertainty. Here are 8 money management tips to help make payments, debt, budgeting, and financial planning a little easier.
1. Ask to skip a mortgage payment
If you have a mortgage, talk to your local branch or advisor about our skip-a-payment option. Most institutions, like Meridian, allow you to skip one payment in a 12-month cycle. This means you can take the value of your regularly scheduled payment and add it into your cash flow for the month.
So, if you have monthly payments, you can skip one payment. If you pay biweekly, you can skip two payments. You will have to make up the payment eventually, and there may be some conditions. Talk to your branch or advisor for ideas that can help with your finances.
2. Check on your minimum mortgage payment
You may be paying a higher monthly amount than the minimum required on your mortgage. Talk to your local branch or advisor to find out what your minimum payment is. If you’re currently paying more, ask them to scale it back to the minimum to help increase your cash flow. Once things settle down, you can go back to paying the original amount. This short-term reprieve is an excellent money management tool.
3. Check on your minimum line of credit payment
Usually, the minimum payment on any line of credit (like home equity or an unsecured line of credit) is interest-only. Talk to your local branch or advisor to find out if you’re paying more than required. If you are, you can scale back and make interest-only payments. This increase to your cash flow will help with finances until things settle down.
4. Consolidate credit debt
If you’re carrying balances on multiple credit cards or lines of credit, this is the perfect time to consolidate. Move all of your credit debt into one lower-interest loan or line of credit. This simplifies your money management, as you only have to handle one payment, instead of many at higher interest rates.
5. Budget
Smart savers keep track of their budgets, whether things are good or bad. If changing markets have had an unexpected impact on your budget, it’s time to re-evaluate and potentially seek help with finances. Take a look at how your spending and saving are being affected and make adjustments so that you can ride out this period of uncertainty. Then, when things calm down, take the time to examine your budget again, to adjust as necessary.
6. Keep an eye on your debt
Don’t give up on managing your debt because the market is down. Keep paying off debt and avoid building more to make sure that your credit score hasn’t gone down when markets pick back up. This money management strategy will keep you in good shape for future credit applications. Check out tip #5, on budgeting, to help you stay on track.
7. Consolidate loan payments
Loan consolidations help you get ahead by reducing the interest you pay. A consolidated loan puts you on track to repay principal and interest, so you have an end game and a one-payment approach to your loan debts.
If you own a home, you can also seek help with finances through refinancing or re-amortizing. Get in touch with your local branch or advisor to talk about your options.
8. Don't cash out your RRSP
You likely have big plans for your RRSP - so don’t use it for cash flow. It’s not a good money management strategy and will actually cost you in taxes. Not only will you incur withholding taxes at the time of withdrawal, but this amount is then added to your income, which might negatively affect your return. Money received through an RRSP withdrawal is considered taxable income, which is subject to income tax.
For example, let’s say you need $5,000.
If you withdraw $5,000 from your RRSP, a withholding tax of 10% is immediately retained by your bank or other Financial Institution. In addition, you’re likely to have to pay more taxes on the withdrawal, once you file your taxes. This means you’ll pay $500 in taxes up front, plus additional taxes when you file your return.
Alternatively, if you borrow $5,000 from a Home Equity Line of Credit (HELOC) at 7.20% (rates vary and are subject to change) and pay it down within a year, you’ll pay $360 or less in interest, depending on how quickly you pay it back. In most cases, borrowing is a much better alternative to withdrawing from your RRSP.
What should you do now?
Knowing where you stand is key to money management.
Start by taking our quick survey to get your Financial Resilience Score.
Find out how to protect your financial wellbeing during unstable times – see our Financial Resilience Hub.
Get in touch
If you have questions or need help with finances, we’re here for you.
Find the phone number for your local branch
Call our Contact Centre at 1-866-592-2226.
An original version of this article was published on March 17, 2020.
