Stay calm, living lean won't be forever

Define what is essential when planning budget

Rent, mortgage, utilities, groceries, supplies for your kids, medication and a basic cellphone package. These are essential expenses to get us through COVID-19. Everything else we used to spend money on can - and probably should - be deprioritized from our budgets.

Non-essentials include clothing, makeup, video games, gym memberships (which are all closed anyway), pizza nights and more.

Statistically speaking, we know that non-essentials comprise about 25 per cent of the average Canadian household's take-home income. This savings, if you're still working, could go toward shoring up your emergency cushion. If you're not working and will be collecting government benefits (which max out at about $2,000 per month), these cutbacks will help balance your budget, and hopefully keep you out of unnecessary debt.

Living lean won't be forever, but during these trying financial times, it's simply prudent to protect your precious resources. Here are a few tips to help you prioritize and trim your budget.

Be a ruthless budgeter

If you weren't a budgeter before, you need to become one. You simply can't afford not to have a clear plan for spending right now. Total up your income, then list and total your essential expenses. Any money left over after paying essential expenses can be put toward an emergency cushion in case you lose your job. If you're negative - perhaps you've lost your job - you need to renegotiate your essential expenses by calling your mortgage company, telecom and utilities providers.

Track your digital dollars carefully

Given that we're using online shopping to get what most of us need, you'll want to track credit and debit card transactions, e-transfers and your PayPal account. Reconcile your digital spending on a weekly basis to ensure you're keeping on track with your budget and haven't fallen victim to fraud.

Meet or negotiate your credit obligations

Most Canadians make payments on a combination of debts; mortgages, car leases, lines of credit, credit card balances, store credit and more. In the majority of cases, the interest component on these debts is an essential payment. If you are unable to meet these obligations, you need to call each lender and have a conversation about deferring payments, reducing the payments and interest rate, and returning goods you can do without (if applicable). Yes, this might mean turning in your leased vehicle. Whatever you do, don't get upsold into spending more during your phone call!

Streaming services

Streaming the latest episode of "Jack Ryan" isn't essential. But, I get it. We're on quarantine and bored. If you really feel like you can't survive without your entertainment subscriptions, you can still save money by reducing your subscriptions to just one music and one streaming site. Cut the rest. And if you're a reader, join your local library because they all have free eBooks and audiobooks that you can "rent" on your digital library card.

Emergency cushion first, then retirement savings

It's a field day for value investors who are trying to jump into the markets and buy investments for their retirement portfolios at a discount. But this strategy isn't suitable for people who are without an emergency cushion. Once you've got three months of your household expenses set aside, then return to saving for retirement as an essential part of your budget.

Boredom is very bad for your bank account

Have structure to your day. Don't sit around online shopping or go to the store when you don't have to; you put everyone at risk and it's bad for your bank account. Learn new things (download a free language app). Enjoy the free data overage allowances that the telecoms are offering and connect with your friends and family. Do free at-home workouts. Structure is also good for your mental health.

Whether you're managing your household budget or desperately trying to keep your business afloat, follow this prudent principle; essential expenses are things you, and your business, literally can't live without. If you're remotely on the fence about a cost, it's probably non-essential.

And, if you haven't already done so, file your taxes. Yes, the deadline has been extended to June 1, but 70 per cent of Canadians are due for a refund. Why wait.

Given that many of us are turning to online shopping, you'll want to track credit and debit card transactions.

Copyright 2020. Toronto Star Newspapers Limited. Reproduced with permission of the copyright owner. Further reproduction or distribution is prohibited without permission. All Rights Reserved.

This article was written by Lesley-Anne Scorgie Contributing Columnist from The Toronto Star and was legally licensed by AdvisorStream through the NewsCred publisher network.