Managing Your Money in a Recession | An Interview with Octavia Ramirez

The world is on fire, and the economy decided to take a swim in the toilet– so we interviewed our friend Octavia Ramirez, the founder of Paper and Coin, a personal finance coaching company in Toronto, to give us some advice on how to navigate these capitalist shark-infested waters.

Tell us a bit about what you do and why you started Paper and Coin.

Paper and Coin started out of my need to share my own journey with personal finances. In 2013, I was working as a cancer researcher, making a decent salary, but never feeling like I was ever seeing any of it. Every payday, I’d pay into my credit card balance, with little to nothing left to spend on myself; it was frustrating and I felt like a rat on a wheel. One day, I decided to grab a pair of scissors and shred my credit card into tiny pieces! I worked for a few months to pay off the balance in full, and have been debt-free and credit-card-free ever since! 

Now, as the Founder/CEO of Paper and Coin, a financial literacy and coaching program for millennials, I lead a small team and coach people on how to build and stick to a budget, how to strategically pay off and avoid debt forever, as well as how to save and invest to create long-term wealth. 

What advice do you have for freelancers and consultants to financially prepare for the unknown?

The best tool for anyone, especially those with fluctuating and unpredictable incomes like freelancers and contractors is to have a budgeting or accounting system. You NEED to know your numbers - how much revenue are you generating per quarter? What are your overhead expenses? What’s your profit and loss ratio? What percentage of profit do you take as your personal income? All questions that as a solopreneur, you need to know if you plan on having longevity in your business. I don’t care if you use accounting software like Wave Accounting of Freshbooks, or your own Google Spreadsheet - I use a mix of both. 

Once you know your numbers, the next most important thing is to ensure you’re setting aside enough money for taxes. Whether you pay quarterly or annually, aim to put at least 25-30% of gross revenue into a high-interest savings account. Hopefully, if you’ve got a great accountant, and you’ve been diligently tracking your expenses and taxes, you won’t have to pay the full amount of that, but even if you do, you’ll be ready. The last thing you want as a freelancer or contractor is a surprise tax bill. 

What advice do you have for folks who have been recently laid off?

First of all, don’t lose hope. I know these are strange and scary times we’re living in, but you will get through this! Almost everything I’ve learned about personal finances, and the financial growth I’ve had over the last several years was forged out of a tough time I’d endured.

Secondly, take advantage of the financial help and assistance that you need at this time. As part of the $107 billion stimulus package from the federal government, you could receive $2000 per month for up to 4 months from the Canada Emergency Response Benefit (CERB). If you’re still unemployed after the 4 months is up, and you qualify for EI, that’s the next best place to go for additional help. 

What should people working full time be thinking about and planning for?

If you’re still working full-time, this is a great time to do a financial gut check. First of all, you NEED TO HAVE AN EMERGENCY FUND! That’s 3-6 months of expenses set aside in a non-investment account. So, guess what? Your TFSA doesn’t count! Your emergency fund shouldn’t be fluctuating with the market. Get yourself a plain ol’ high-interest savings account, calculate your basic “survival” expenses - food, shelter, insurance, transportation, and utilities, and start working on setting aside at least half a year’s worth of that. If you’re still getting a regular paycheque, you’re one of the lucky ones, so take this opportunity to plan and prepare for the worst, especially if you didn’t already have this in place pre-COVID-19. 

Thankfully, with all this social distancing and self-isolation, a lot of people are saving tonnes of money that they were otherwise spending on entertainment, eating out, and other disposable spending. So, use the additional margin to build yourself some financial buffer. And, if you’re in a good place, with a solid emergency fund, and few liabilities, consider giving generously at this time. Support local small businesses, donate to hospitals, food banks, and homeless shelters. You’re in a position to really make a difference - what an incredibly beautiful privilege! 

What kinds of government programs can we take advantage of at this time?

Thankfully, the government has issued an extension for tax filing and payment deadlines. So, if you owe money, especially if you’re a business owner, you’ve not got until August 31st to pay your taxes. However, for personal filing, the deadline is now June 1st, instead of April 30th. If you’re expecting a return, I recommend you file as soon as possible to get some extra money in your hands to weather this storm and use that as your emergency fund. 

Business owners should look into the 75% employee wage subsidy to retain their staff on payroll as long as possible. If you had to lay people off or reduce their hours, this program should help, but we’re still waiting on more details on how to apply and which businesses qualify for this program. 

If you lost your job, were laid off, or had to reduce your income and hours due to COVID-19, definitely look to the CERB as your first line of defense. This also includes anyone that had to stay home because they were sick, in self-isolation, or had to care for a sick family member during this time.

If you’ve got a student loan balance that you’ve been paying into, there’s been an interest-free payment deferral starting from March 30th to September 30th! This is huge, especially for those paying hundreds of dollars even as minimum monthly payments every month. This will be instated automatically, so there’s no need to apply for anything. I suggest, again, stockpiling that money into an emergency fund and use only for essential expenses during this time. 

What are mortgage deferrals and what do they mean?

Mortgage deferrals are when your lender grants you a “grace period” on your monthly payments for an agreed-upon period of time. According to the Canadian Bankers’ Association, a policy and advocacy organization representing nearly 60 domestic and international banks in Canada, homeowners with a mortgage from any of the Big Six banks should reach out to their lenders to be assessed on a case-by-case basis for a 6-month mortgage deferral. 

A few key notes to consider is that this doesn’t include a deferral on interest charges, just the principal. Your interest will continue to accrue but will be deferred and spread out several months after the 6-month grace period, or throughout the life of the mortgage. Thankfully, if you have a variable interest rate, your mortgage interest charges will be lower than they’ve been since the 2008 recession due to a recent key rate slash by the Bank of Canada - it’s down to 0.25%! 

And, if you’re worried about how this will affect your credit score, don’t worry! With a mutual agreement between yourself and the bank, plus the precedent set in light of economic uncertainty at this time, your lender can not report your payments to your credit bureau as “late” during this 6-month deferral period. 

What tips do you have to get financially ready for a recession?

As mentioned earlier, take this time of social distancing, where you’re likely not spending much on disposable spending to stock up as much of an emergency fund as possible. Not to scare anyone, but there’s no telling how long this will last, and how your job might be affected if it hasn’t already. 

Also, if you have variable rate loans, like a line of credit, car loan, or a mortgage, take advantage of lowered interest rates and divert the money you were originally paying into those and put them towards that cash stockpile, rather than incurring more debt during this time. 

And, if you have high-interest credit cards, consider consolidating them into a line of credit while interest rates are low, and continue just making the minimum monthly payments on that to avoid damaging your credit score. 

And, if you have retirement investments in your RRSP and TFSA, I’d recommend you avoid looking at them or touching them right now - for your own mental health. The global market’s on a downturn right now, but it’s not going to stay that way, I promise you! The worst thing you could do is to sell your investments while they’re low - that’s how you lose money during a recession. Instead, ride the waves - your investments WILL bounce back, and you will recoup any losses during this time. If you’re nearing retirement, however, consult your financial advisor to discuss your options to prevent any further losses. 

Anything else we should know?

I’d encourage everyone to try and look at this moment in time from a big-picture perspective. Our grandparents were raised in the post-Depression era, our parents lived in the sky high-interest 80s, and we’re now living sandwiched between the 2008 recession and the uncertainty of today. But, this too shall pass, and how you come out of all of this won’t depend on how stable your job is, or how much money you had, but how you handled the hand you were dealt.

The lessons you learned, and what you actually did about it. Take this opportunity to grow, become wiser with your money, and a stronger person overall.