Last week, I wrote about my financial plan during COVID-19. If you have not had a chance to read the blog, I invite you to read it here. This week, I want to share how the observations I’ve made during this pandemic have reshaped my views regarding my post-COVID financial plan.
But first, an update on how my family and I are doing.
The restaurant that Lina, Evan and Ally work for has reopened and stayed afloat through all the government restrictions put in place. Lina was called back to help manage it, and Evan and Ally resumed their shifts.
My family is back to work. But the shifts are shorter to keep everyone safe, and the wages are a fraction of what they were before the pandemic. Still, we are all relieved and grateful. And we remain vigilant about our budget and will continue to be so for the foreseeable future.
As my family and I adjust to life in the midst of COVID-19 and then after, questions still plague me during sleepless nights.
Am I crisis proof? And, by extension, is my family?
By now, we all recognize that COVID-19 has caused not only a global health crisis, but a global recession that may take several years to recover from. Though there are signs of recovery from this unforeseen tidal wave of loss, I wonder when our society will experience another crisis of such magnitude.
When will the next recession happen? Because as history has shown, a chaotic event comes at least once in every generation that shifts humanity on its axis.
This may all be post-traumatic stress. I may be bracing for life-changing events that will not appear again for quite some time. But still I must ask, am I crisis proof? Will my family and I remain resilient during the next recession (which, in my mind, will undoubtedly happen)?
But I AM optimistic, because as I consider these questions, there are three areas in my financial plan that I can strengthen to sleep well at night again:
- Our “rainy day” fund must be increased to cover at least two years’ worth of expenses.
- Our future medical and disability expenses must be covered.
- We must always be prepared to help our children.
What areas should you look at when trying to make your finances crisis-proof?
- Your Rainy Day fund
- Medical and disability insurance
- Financial support fund for dependents and family
1. Bolstering our “rainy day” fund
One of the first observations I made when the pandemic arrived was how vulnerable some industries and businesses were.
Those employed in the restaurant, hospitality, airline, or entertainment industries were almost immediately furloughed. And so many small businesses have not survived the economic shutdowns and will never be able to hire back their employees.
Though governments all over the world have done much for their citizens, it may not be enough to support families until the recession is over.
As I wrote last week, my current rainy day fund holds approximately six months’ worth of rent payment savings. Most financial planning literature suggests that a fund like this should hold approximately three to six months’ worth of major household or business expenses.
But the current recession is already proving to last longer than six months, which means that a typical rainy day fund could potentially run out before an unemployed person finds a new job or a business reopens.
If we agree that the current recession may last two years or longer, then I think we should consider updating the rule of thumb from six months to at least two years’ worth of savings.
So, the first adjustment I must make is to increase our six months of rental savings to two years of all household expenses, rent included. That should keep our family afloat in case I lose my job or Lina must stop working because the restaurant closes permanently.
I plan to encourage my children to also increase their savings from the current 10% to 20-30% and even more when they truly launch their independence away from home.
Increasing our savings requires that we keep to our current strategy of living on one source of income and adding all the wages that Lina earns to our rainy day fund. Then, if we add those savings into a tactical dividend investment strategy, we should meet our goal of covering two years of expenses within five years.
2. Medical and disability expenses
The second observation I made in the early days of the pandemic is that many small businesses do not provide medical and/or disability coverage to their employees for various reasons.
I am fortunate to be working for a large company that has made it possible for me to purchase affordable medical and disability insurance. However, my family does not have those same benefits in their current employment. While Lina is covered under my drug and disability insurance plan, my children are now adults not covered by my benefits.
In order to receive medical and disability coverage, my children would have to purchase their own private policies directly from one of the Canadian insurance companies.
In Ontario, a basic health plan for a young adult, which includes dental, vision care, and travel, could cost approximately $125 to $170 per month. In addition, depending on the earned income, benefit amount, waiting period and any other selected provisions (for example, cost of living adjustment), a young adult is looking to potentially pay approximately $25 to $50 per month for disability coverage.
For older adults in their forties or fifties, the combined cost of private health and disability insurance is significantly higher and could potentially be as much as $500 to $600 per month.
To ensure that our family has sufficient health and disability insurance coverage, we will have to make adjustments to our current budgets to set aside an additional sum to cover potential future expenses.
3. Taking care of family
My third observation during these difficult times is how important it is to stay connected and be supportive of family.
Despite all the challenges of the pandemic, my children are looking to launch their independence in Vancouver next year. My son Evan is even thinking of changing careers, since he too has made some observations about the industry he’s currently employed in.
I am concerned about their move, as it will take them further away from their support systems at home in Toronto. I also worry that finding work in a new city during times of recession may be even more difficult.
But my kids have shown that they are resilient in the face of challenge and were saving for the move to Vancouver even before the pandemic began. And they know that no matter what, they can always come home if they need to reset and start fresh.
Still, as a parent, I always want to be able to help my kids. In the recent past, it has been our policy to give them monetary gifts for birthdays and Christmas, earmarked for their RRSP savings. Lina and I plan to maintain this policy, which means we will have to deliberately set aside a yearly gift fund.
We further plan to help Ally and Evan sharpen their financial planning skills through continued family discussions, so they too can budget for a bolstered rainy day fund and for health and disability insurance coverage. I believe that if our family is responsible and deliberate with finances, we will not burden each other financially in the future.
I urge you to review financial plans and ask yourself, am I crisis proof? If the answer is not a confident yes, then it is time for an adjustment. It may not be easy and there may be sacrifice, but you will sleep better at night.
Never Retire Profile of the Week
Larry King
It’s unlikely that you’ve never seen a Larry King interview. During his 60-year career, he’s conducted over 40,000 of them—and continues to do so on his current show, “Larry King Now,” which airs on Ora TV, a production company he co-founded. He is best known for “Larry King Live” on CNN, which ran from 1985-2010. Born in Brooklyn, New York in 1933, King has worked as a disc jockey, radio show host, newspaper journalist, sports commentator and, of course, television talk show host. The prolific conversationalist tells a funny story about how, having been born Lawrence Harvey Geiger, he came to be King: “I changed my name at the insistence of the general manager of the radio station I worked at. He happened to be looking at an ad for ‘Kings’ Wholesale Liquors’ in the newspaper at the time and Voilà! from that day forward, I was Larry King. I’m just glad he didn’t come across an ad for Vaseline.” Having interviewed countless politicians, actors, musicians, athletes and other notable people—from JFK and Vladimir Putin to Paul McCartney and Lady Gaga—King has long been a household name.
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