Managing Financial Hardships: A Guide for Canadian Investors

In the journey of life, we often meet unexpected bumps in the road. Financial hardships can be those bumps, throwing us off course and causing stress and uncertainty. As Canadian investors, it's crucial to have a solid plan in place for managing these challenges. Whether it's job loss, medical expenses, or challenges like a recession, a rise in interest rates, or the recent pandemic, here's a guide to help you find the way through tough times.
Step 1:
Assess your current situation: Identify your income, expenses, savings, and debts. Understanding where you stand will help you make informed decisions moving forward.
Step 2:
Create a budget: A budget is your roadmap during tough times. List all your expenses, including essentials. Then prioritize your spending based on what's necessary for your survival and well-being. Cut back on non-essential expenses wherever possible.
Essential expenses include anything you need for a basic standard of living, such as:
- Rent or mortgage payments
- Utility bills
- Grocery bills
- Gas and transportation
- Insurance
- Health care
- Childcare, if you have kids
Being open about your finances through active budgeting might lead to discovering cost-effective ways to enjoy yourself. It also presents an opportunity to involve your friends in the process. For instance: "Would you be interested in coming to my place for drinks rather than going out?". By mixing budgeting into conversations, you also encourage others to do the same. Chances are, there are individuals within your social circle seeking ways to trim expenses too.
Check out the FCAC’s Budget Planner tool and start today.
Step 3:
Seek Financial Guidance: Don't hesitate to ask for help from financial professionals if you're feeling overwhelmed. During periods of financial hardship, it's tempting to cash out investments to cover expenses. However, selling investments without careful consideration can lead to losses or tax consequences.
Locked-in accounts typically have restrictions to ensure funds are withdrawn only in very specific circumstances, such as financial hardships. These restrictions vary by account type and jurisdiction, often requiring meeting conditions like unemployment or severe financial need. These safeguards prevent premature withdrawals, maintaining your long-term financial security. Be aware that some scammers may try to promote unlocking schemes to access locked-in retirement accounts like LIRA.
A financial advisor can give personalized advice and strategies tailored to your situation. They can help you make tough decisions during uncertain times. Learn more about selecting an advisor.
Step 4:
Explore Government Assistance Programs: Canada offers various government aid programs to help individuals facing financial hardships. These include Employment Insurance (EI), Canada Recovery Benefit (CRB), Canada Emergency Response Benefit (CERB), and others. Research these programs to see if you qualify and how they can support you during tough times.
Food banks, meanwhile, can provide help if you’re experiencing food insecurity because of hardships.
Step 5:
Communicate with Creditors: If you're struggling to make debt payments, don't ignore the issue. Plan to pay down your debt and avoid taking on any new debt. Reach out to your creditors and explain your situation. Many lenders offer hardship programs or may be willing to negotiate new payment terms. Your credit card company, for instance, might have a hardship program that would allow you to temporarily defer payments or reduce your interest rate until you bounce back financially. Or you might be able to qualify for a debt consolidation loan, which could make your debt less expensive.
The Financial Consumer Agency of Canada (FCAC) has expectations for federally regulated financial institutions if you're struggling to pay your mortgage due to special circumstances. Learn more about paying your mortgage when facing financial difficulties.
Step 6:
Build an Emergency Fund: Building an emergency fund during financial hardships is important for pulling through unexpected expenses or income loss. Even during tough times, setting aside a small part of income regularly can gradually grow into a safety net. Over time, this fund provides peace of mind and stability, cushioning against future financial uncertainties. Research has shown that having an emergency fund not only plays an important part in your financial health but can also significantly reduce financial anxiety.
Step 7:
Explore Other Income Sources: Consider ways to supplement your income during tough times. This could involve freelancing, part-time work, selling unused items, or even starting a small business from home. Every little bit helps when you're facing financial challenges.
Step 8:
Protect Your Investments: With scams evolving and becoming more advanced, the cost of falling victim can be severe. Advancements in AI technology have made it easier for scammers to impersonate individuals, using tactics such as cloning faces or voices.
Staying vigilant against ever-evolving scams is essential. Familiarize yourself with common scam approaches and safeguard your personal information by adhering to these precautionary measures. Check out “Avoiding Fraud and Protecting Your Investments” to learn more.
Facing financial hardships is never easy, but with careful planning, Canadian investors can keep going. By following the steps above, you can overcome challenges and come out stronger than ever. Financial hardships can take a toll on your mental well-being. It's essential to prioritize self-care and seek support if you're struggling emotionally. Lean on friends, family, or mental health professionals for guidance and support. Stay positive and focus on what you can control. Be flexible and willing to adjust your plans as needed.
Remember, you're not alone! Visit the Office of the Investor to stay informed about investor initiatives, educational resources, investor warnings and more.
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