The New Landscape – Tips for the Switch
Many have been existing in the “gig economy” for years. COVID-19 has simply accelerated the switch to part-time self-employed work. In the United States, the downside to switching from full employment to self-employed work is the cost of health care. In Canada, we are very fortunate that we have universal health care, and the switch can be made without this worry. Bravo to the British Columbia court last week for ruling against private health care.
With declining incomes and loss of jobs, using debt wisely is another way to get through the new landscape. Understanding the different types of debt and how credit scoring works are very important.
This is also a good time to “stress test” your retirement plans with free tools that I will refer to.
Tips for the Switch:
- Apply for government benefits – the CERB and the CECRA were extended, and new income support benefits were announced on August 20 (see below)*
- To keep workers employed Prime Minister Justin Trudeau announced last night that the Canada Emergency Wage Subsidy (CEWS) will be extended to next summer, which pays employers a percentage of an employee's wages.
- Call your bank or credit card company for deferrals of mortgage payments and lowering of interest rates. They don’t want to lose you as a customer.
- Stay connected for referrals, getting together with friends is even more important now while following physical distancing.
- Tap into websites connecting your skills with people looking for them, such as askfortask.com and upwork.com.
- Become digital savvy, improve your “Zooming” skills and stay on the edge – please refer to my blog from last year https://www.deanconstand.ca/b/global-downturn--when-the-music-stops-keep-dancing.
- Track your spending and finances using a free service, such as mint.com.
- Use debt wisely to buy assets that grow in value or result in increased future income, such as a mortgage or a student loan to keep learning or reinventing yourself. If necessity is the mother of invention, then crisis is the mother of transformation.
- Seek out opportunities - the word crisis in Chinese is represented by both the symbols of danger and opportunity.
- Minimize your use of revolving debt where your payments do not pay down the principal, which can happen with a credit card or an interest-only line of credit.
- Maximize your use of instalment debt where the principal is paid down with every payment, such as a mortgage or car loan.
- Apply for a credit card in your name so you can establish a credit history for yourself, and try to pay off the balance every month. This will give you access to consumer credit.
- Request a credit report of your creditworthiness and your credit score, which ranges from 300 to 900. The higher the score, the more attractive you are to lend to.
- How is your credit score determined? Many variables come into play, like payment history and credit utilization. For example, the closer you are to your credit limits, the greater risk you are to lenders, the lower your score.
- Credit inquiries made by potential lenders after you’ve applied for credit affect your credit score negatively. These are called “hard” inquiries. “Soft” inquiries are made by yourself to access your credit report and do not affect your credit score.
- How do you get your free credit report and score? Call your bank or sign up with independent organizations, such as creditkarma.ca or borrowell.ca. You can also request credit reports directly from Canada’s two credit bureaus, Equifax Canada 1-800-465-7166 and TransUnion Canada 1-800-663-9980. In the US, you can request your credit report from the credit report service at 1-877-322-8228.
- Lenders use different credit bureaus, so the more credit reports you have at your disposal, the greater your arsenal for being successful at borrowing.
- With respect to investing, a rule of thumb of investing your age in fixed income investments is prudent. For example, if you are 30 years old, your investment portfolio of 30% fixed income (and 70% equity) is prudent because you have a long horizon for stocks and bonds to appreciate. If you are 60 years old, your fixed-income investments at 60% temper shocks, like COVID-19, because your time to recover that investment is shorter.
- To help women get back into the workforce yesterday's Thrown Speech announced an affordable national early education and childcare program.
- I’ve been a fan of David Trahair, CPA, CA, for several years after reading his book “Smoke and Mirrors: Financial Myths That Will Ruin Your Retirement Dreams”. This new landscape may mean retiring later so your investments don’t run out, and he provides handy spreadsheets, such as the Retirement Optimizer, to “stress test” your retirement plans at trahair.com.
*The Canada Emergency Response Benefit (CERB) was extended to 28 weeks from the original 16 weeks and will end September 26. It provides $500 a week to the employed and self-employed who ceased working due to COVID-19 for at least 14 days.
The Canada Emergency Commercial Rent Assistance (CECRA) providing relief for small business tenants and property owners was extended to September for a total of six months relief starting in April.
The Canada Recovery Benefit is for self-employed workers who are not eligible for EI and cannot resume work. It provides $400 a week for up to 26 weeks.
The Canada Recovery Sickness Benefit is for workers who are ill or who must self-isolate for reasons related to COVID-19, providing $500 a week for up to two weeks.
The Canada Recovery Caregiving Benefit is for workers who are unable to work because they are caring for a child, dependent, or family member, because schools or daycares are closed due to COVID-19, and provides $500 a week for up to 26 weeks per household.