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How To Create A Personal Finance Contingency Plan

back-up plan

Know Your Options Ahead Of An Emergency That Can Change Your Life

A personal contingency plan reduces panic, stress, and confusion while committing you to a better place than those who leave their finances to chance.

What does that mean for you and me?

It’s the difference between having $1 with a plan to get more when needed and having no money and no resources in place.

When Mrs. CBB finally decided to buy our home we didn’t know it at the time but we had created a financial contingency plan, just in case.

We bought our first home together on one income because it was more important for us to plan for unforeseen events.

Our theory was that an ounce of prevention was better than having to fight a financial battle that we may lose.

We would review our plan yearly to make sure that it still made sense to us according to our situation.

I’m not sure if we just had our frugal mindset on Green-Light-Go but we sat down and created scenarios of emergency.

By this I mean,

  • Could we keep our home running on one income? If yes, who’s income?
  • What will do for money if one of us gets injured or has a health problem?
  • When was the last time we reviewed our retirement portfolio?
  • How can we earn more money while still working full-time?
  • What ways could we chop our budget and still get by?
  • How much would a basic grocery budget cost us approximately every month?
  • What happens if we need to postpone retirement?

Postponing retirement has become a new reality for many older workers in the wake of the market crash, underlining the need for reform of the rules around retirement saving in tax-deferred programs.

Contingency Plan For Those Left Behind

These days we are still considering all of the above and more but most of all we think about our son.

What happens if one or both of us become infected with the virus and are in the hospital or even worse, die?

  • Who will look after our son if we are not here to care for him?
  • Do we have a legal will? (Yes we do, now)
  • Are all of our financial documents up to date?
  • Does my spouse or power of attorney know how to access everything they need if I die or become ill?

This almost gives me the chills to think about it but we are in no position anywhere around the world to think that we can otherwise hide.

Related:

Widow Left With No Money After Bank Freezes Account When Spouse Dies

What happens to your TFSA if you were to die?

What is a contingency plan?

Most often a contingency plan is used for businesses and governments where they create a back-up plan just in case of emergencies.

For example, once this C-19 virus has passed the government more than likely will have a contingency plan in place in the event an outbreak should happen again.

I’m sure they had something on paper but you never know the extent of a situation until you are living it however having something put in place is better than nothing.

A contingency plan may also include multiple situations that could occur and shift over time.

  • Can we live on one income?
  • How to stretch our food budget?
  • Do we have emergency savings?
  • How will we support ourselves during a financial waiting period? ex: Employment Insurance, WSIB, Long-term or Short-term insurance – disability.

The idea is to be prepared for the worst so you aren’t facing disaster not knowing what to do.

I know this sounds like a tough pill to swallow but unless you consider all of the possibilities you may be scrambling for help.

Business Contingency Plan

From a small business standpoint, a contingency plan may incorporate savings in the event you cannot run your business but still need to pay the bills or employees.

Running a blog is an online business that many people rely on for full-time income because at the time money was coming in strong.

I do not however but still need income to fund this blog and a sudden drop in traffic also requires a back-up plan.

Do you know all of those ads you might hate or having to scroll to the bottom for a recipe?

Well, that’s income for your favourite bloggers which helps them earn a living while working from home.

Imagine if you were earning a living and had to do something that didn’t sit well with all customers.

If they stopped coming back you’d lose money however you can’t please them all because the bills need to be paid.

Recognizing why and how businesses earn a living may help you to understand how you can better support them.

Financing Your Business To The Max

We know a couple who are running a dining restaurant that is levered with a second mortgage on their home.

It was the only way for them to open their dream restaurant and I guess, ‘hope for the best‘.

They are employing 4 minimum-wage staff to help with take-out including themselves and are stressed to the max.

  • Is it worth it for them to stay open?
  • Can they pay their employees and bills or are they just breaking even?
  • Will there be any support from the government? If so, what and when?

There are lots of unknown situations to consider and another reason why you should NEVER open a business without a contingency plan.

Financing your home or borrowing money for a business that could tank puts you in a very rough high-risk financial position.

Even though there may be promised government assistance ALWAYS create a contingency plan where you rely on yourself, FIRST.

Related: Businesses plead for relief as pandemic halts cash flows

Businesses are pushing for a broad freeze on payments to government and a ramp-up in wage subsidies as part of a more aggressive approach to safeguarding cash flow and avoiding cascading mass layoffs.

Look After Your Staff

Loblaws Canada, for example, announced they were going to pay their front-line employees that were working through the 2020 world virus epidemic an extra $2.00 an hour.

Sobeys, on the other hand, created a “Hero Pay Program” for its employees working through the pandemic across Canada. 

Sobeys says all staff members will receive an additional $50 a week, regardless of the number of hours worked.

In addition to the extra $50, staff who have worked more than 20 hours a week will receive an additional $2 premium per hour for all hours over 20 hours.

I guess that these contingency plans that the companies are offering to keep and praise their staff were not part of their plan.

Often in the wake of something catastrophic your contingency plan shifts which means you have to override or make changes to it.

You can’t always predict what will happen in the future however you must brainstorm possibilities and consider them part of your plan.

Again, I’m sure moving forward businesses knowing what they know today will create a contingency plan for the future.

  • How will I pay the bills if my customer base is low?
  • Can I afford a rent increase for my business?
  • What will happen in the event my business is closed temporarily?
  • What other ways can my business earn income?

Unlike the current C-19 situation where the government is stepping in to help businesses, this may not always be the case.

Just like a business our personal lives centre around the same ideals especially when it comes to having savings and a back-up plan.

Let this be an eye-opener for every person and business who does not have a contingency plan in place and how dangerous of a position they’ve put themselves in.

Personal Contingency Plan Questions

On a personal level reading comments on social media from people who are financially devastated and not sure what they will do means, we have a big problem.

Financial fear is gut-wrenching not knowing whether you will have the money to support yourself or your family.

Not knowing whether you will be on the streets even though you’ve been assured that you won’t get evicted.

There will always be that “What if” weighing on your shoulders and in hindsight perhaps this is the wake-up call everyone needed.

The distressing part is not everyone cares about having a plan B in place and it’s not until they live it that it becomes an emergency.

  • What will I/we do now?
  • Where will I/we turn to?
  • How will I/we handle a financial market crash?

Sometimes, oftentimes there is nowhere to turn which is another reason we have people living on the streets.

Waiting and hoping that someone will pick up the pieces when you are out of work or your bank account is empty is a cruel place to leave your mental health.

Then what happens is ‘blame’ for not being better prepared.

  1. Why don’t we have emergency savings?
  2. How come we didn’t budget or track our expenses?
  3. Why did we spend so much money on ________?  house, clothes, vacation, car, etc. when we couldn’t afford it or left us in a tight spot financially.

Be Your Financial Planner

The more I read about the current pandemic spreading rapidly across the world about people suffering without money the more it pains me.

I wish I could help everyone but I know I can’t do more than spreading the word about the importance of financial planning and donating goods to those in need.

Now that almost everyone in one form or another is indoors to help flatten the c-19 virus curve this is the time to get your shit together.

I’m just going to get to the point, take it or leave it. I’m alright with that. 

  • No more later, no time, not worth it, can’t do it.
  • Stop the excuses
  • No more I don’t have enough money.
  • Stop blame-shifting

Just do it.

Find a way to make it work because when you have nowhere to turn you’ll be forced to make it work so it’s best to do it while you can and not when you’re on your knees.

Let that sink in for a moment.

You’ll Be Forced To Make It Work.

Sit down with a journal and start a contingency plan and tear apart every cent you owe in debt and create or revamp your budget.

Let’s go through some important aspects of our personal contingency plan in the CBB house and how you can evaluate or create one.

1. Situational Awareness

In the event, you are faced with an emergency such as the current pandemic facing the world in 2020 keep up to date with what is happening.

The reason you need to know what is going on is so you can adjust your contingency plan as needed, day by day.

2. Family Communication

Sometimes we like to hide what life is like behind the bank account from our children and even our spouse (do not recommend).

Keeping your family calm and in a place where they understand that you are doing what you must for the family is critical.

Children will always feel or know that something isn’t right even if you have to explain it to them in a way that comforts them.

Our son, for example, wants to go play with his friends but doesn’t understand why he cannot.

You may have a child that doesn’t understand why you only get Kraft Dinner to eat instead of big juicy steaks that the family is used to.

Financial literacy is a big deal and should be taught from a young age which helps ease children into the world of employment, unemployment and job loss. 

3. Creating A Bare Bones Budget

basic budget spreadsheet

A while back I wrote a post about how Mrs. CBB and I created a mock budget where we would track our finances based on having a mortgage.

We incorporated everything that you have to pay for as homeowners so we knew if there would be any holes in our budget.

Thank goodness we did that because that one exercise alone set the alarm bells so we didn’t go overboard buying a house.

It also taught us how much money we had to work with when creating certain budget categories.

You may want to create a bare-bones budget just to see where you stand and what you need to do to fix your holes.

Even amid a pandemic if you don’t have a budget, start by researching how to budget and get a move on.

You need to get ahead of what you are already falling behind from if even for investment in your future.

What I mean is, be prepared today no matter what your situation for tomorrow.

Don’t tell me it’s too late, what’s the point because THERE IS ALWAYS A POINT.

Especially if you have a family to care for.

Look into your children’s eyes and tell them you will do everything in your power to make it work.

4. Eliminating Non-Essentials In Your Contingency Plan

The last thing you need amid a financial crisis is to be spending money when you aren’t earning any.

Stick to the necessities and find new ways to repurpose what you do have.

For example, instead of buying new clothes or second-hand clothes keep wearing what you have until you can no longer.

Pass clothing along through the children as they grow.

No more snacks in the grocery cart or try to make homemade treats at home for less.

Related: Check out my budget-friendly Free Recipe Depot

Cut eating out at fast-food and take-out restaurants completely including stops at coffee shops.

Eliminate movie nights at the theatre and opt for movie nights at home with a bowl of buttered popcorn.

5. Establishing An Emergency Savings

Emergency Savings Fund

I feel as if I’ve been saying this far more over the past year than I ever have in my blogging career.

Just watching so many people struggle with their monthly bills has prompted me to talk about the importance of emergency savings.

The struggle I have is when I’m told there are no options to save or they can’t find the money as their budget is tight.

YET, they have a $100 a month smartphone and tell me that is the main phone for their household.

SO, get rid of it and get a house phone which is far cheaper in most instances.

I will say that Mrs. CBB just got her cell phone payments reduced to $20 a month but she has no data.

If you need your smartphone get rid of the data package and go basic and there’s your spare cash.

Finding ways to save when you thought you were already saving is not easy but doable.

Just be reassured that the measures you take today will follow you into tomorrow.

Negativity never helps anyone over the rainbow.

6. Flexibility For Your Contingency Plan

As mentioned above not every emergency you experience in your financial life will have government backing.

There simply will not be enough resources to take care of everyone all of the time which is why you need to be flexible in your approach.

Knowing that you have a plan in place where you can survive even a year of a down-turn is better than scrambling for dollars.

Take restaurants at the minute who are allowed to offer take-out only for customers during c-19.

Lots of restaurants rely on dining room customers as they are not all fast-food or take-out type businesses.

Again, just a simple way to make sure there is a plan in place ahead of the problem and not trying to figure it out during the problem.

7. Information From Reputable Sources Only

Oh and one more thing, for the love of all things personal finance stop asking random strangers on social media about how to deal with your situation.

If you don’t know, make a call and get the information from the horse’s mouth.

What I mean by this is if you are uncertain about your position with this pandemic call employment Canada.

  • Make the call.
  • Call your financial institution
  • Make a call to your financial advisor
  • Talk to Employment Insurance (EI) with your questions
  • Google reputable government websites for information and telephone numbers

Go to Canada.ca where you will find all of the information you need.

Relying on people you don’t even know to plan how you will move forward especially if you don’t have a contingency plan in place and you are financially stressed, don’t do it.

It’s one thing to listen to personal situations of others online and another to base your livelihood around what they say.

Lastly, stay up to date on everything happening with current events revolving around your situation.

It may not be a pandemic the next time around but your best bet if you create a personal contingency plan today you’ll have less stress tomorrow.

Discussion:

Tell me about your financial contingency plan whether it’s personal or for your business. Are you prepared?

What will you do differently knowing what you know today? Leave me your comments below.

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2 Comments

  1. Way back in 1996, a week before we closed on our first home, my husband was laid off. We did not know what we were going to do. Luckily my husband was called back to work within 2 weeks. After that we decided to be very careful about our spending and design our budget around one income (although we have multiple sources of income). We are very lucky that we no longer have a mortgage or car payments.
    We do have a bare bones budget. This is a budget that details what we can cut immediately if there is a loss of one income (things like Netflix, Crave, automatic savings and investments).
    We also have ways to replace income. We have an emergency fund that would last us a few months. An income suite in our basement that would continue to provide more than enough income to cover house insurance, utilities and taxes. We also both have disability insurance through our jobs if we were unable to work due to illness.
    I feel very fortunate to be in the position I am in. So far we have both been deemed essential. We also have a plan in place to offer our tenant rent relief if they lose their job.

  2. I made a Contingency Plan years ago in case I lose the job (when kids were young), but the possibility that all three of us young, healthy adults will lose incomes and jobs on the same day never crossed my mind. Thank god for EI and hope that we will go back to work after quarantine is over. My situation is not bad I have no dept and 3-month leaving expenses saved an emergency fund. But will it be enough?

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