COVID-19 has only recently been declared a pandemic yet within a very short timeframe, the personal financial situation of many people has been completely upended.

In my June 8, 2018 'The Importance of Positive Personal Free Cash Flow' article I discussed my thoughts on this subject matter never having expected the circumstances we currently face.

In this article I revisit the importance of positive personal free cash flow and disclose a couple of things we did in order to generate passive income so as to enable us to retire early.


  • The devastating impact of COVID-19 has come about in an extremely short period of time.
  • Within one month of COVID-19 having been declared a pandemic we have people being unable to meet their financial obligations.
  • A sizable percentage of the North American population has incurred fixed expenses that are unsustainable with the slightest interruption to their personal cash flow.
  • Minimizing expenses and generating passive income are worthy of consideration if the intent is to reduce stress and to become and remain financially free.


The slight improvement in our weather has given me the opportunity to go out alone for lengthy walks/runs a few times a day. I find these ‘alone’ times to be quite therapeutic.

On one of my walks yesterday, my mind gravitated toward the COVID-19 pandemic and the extent to which many people have been so poorly prepared from a financial perspective. The world as we know it has only just recently been upended yet we read numerous stories of people already experiencing financial hardship.

Here we are, just over a month subsequent to COVID-19 having been declared a pandemic. Experts are telling us it is highly unlikely a COVID-19 vaccine will be ready much before 12 - 18 months (see here, here, and here) so imagine the degree of financial hardship many will experience if this continues a couple more months…let alone several more months!

As I tried to grasp the magnitude of the situation many face, I thought about the importance of ‘Positive Personal Free Cash Flow’ (PPFCF). I previously wrote about this subject matter in my June 8, 2018 article but given the current environment I thought it would be a good idea to revisit this subject matter.

PPFCF significantly contributes to lower stress levels and is the subject matter I touched upon in the very first article posted on this site. I followed up that article with another in which I provided my opinion on the ‘10 Investment Commandments for Early Financial Freedom’.

When I analyze our PPFCF I want to know every inflow and outflow on a daily basis to help me identify opportunities to:

  • Minimize expenses;
  • Increase after tax passive income;

Minimize Expenses

Fixed Expenses

If a significant percentage of a household’s take home pay is going toward fixed expenses such as:

  • mortgage payments;
  • property taxes;
  • alimony payments;
  • car loans/leases;
  • various forms of consumer debt

then there is very little room to manoeuvre.

It may be possible to renegotiate the terms and conditions of some fixed expenses but nothing is assured.

Suppose a family encounters a reduction in their family income brought on by COVID-19. The family succeeds in temporarily renegotiating the payment terms on various financial obligations. The amended terms, however, may only be short-term in nature. What happens when the lender insists on reverting to the original terms of an agreement yet the household income has not been restored to the pre-COVID-19 level?

I had a very recent conversation with a former co-worker who left the banking industry in the early 1990s to form his own mortgage brokerage firm; the firm has ~38 mortgage brokers based out of 6 offices in Ontario. He indicated his team’s focus has completely changed in recent weeks. Prior to COVID-19 his team members were helping people arrange mortgages to acquire new homes. In the last month, the focus has been almost exclusively on helping homeowners renegotiate/refinance existing debt.

He indicated that over the past few years many people had stretched themselves financially. Now, ‘the chickens were coming home to roost’ and until things return to ‘normal’, many are desperately trying to:

  • restructure their mortgages to lower their payment obligations;
  • extract equity from their principal residence to meet their financial obligations.

I strongly suspect we will not return to ‘normal’ for several months. If this ends up being the case, many may not be in a position to once again renegotiate their mortgages and may find themselves in a position where their only available option is to list their principal residence for sale.

Given the law of supply and demand, property values could drop from current levels if we experience a surge in real estate listings and a drop in demand. This could result in situations where, on a widespread basis, the value of the property minus all related selling expenses ends up being less than the outstanding encumbrances. Sound unlikely? Not really. It has happened before and there is nothing to say it cannot happen again.

This is why I strongly advocate that people buy what they can truly afford.

I am always leery when I hear of people purchasing a principal residence with financing being 70% or greater of the purchase price. I also think there should be a wide margin of safety between net income and mortgage obligations and carrying costs.

Ongoing maintenance to a house appears to be an expense many do not take into consideration. I can’t be the only person who walks through a neighborhood and sees what might be a family’s largest asset in a total state of disrepair!

If homeownership is out of reach, there is nothing wrong with renting. Renters just need to ensure they are not overextending themselves when it comes to rental obligations.

Variable Expenses

Minimizing expenses is generally easier when they are variable in that they can be reduced or eliminated.

Do you really need that premium cable TV package?

Do the kids need to participate in that many different activities?

Should times get tough and priorities change, what may have been deemed an essential part of one’s lifestyle may no longer be ‘essential’.

Increase After Tax Passive Income

I do not dispute that increasing after tax income at a pace which outpaces the rate of inflation is essential. If your lifestyle is keeping up with your increased income, however, you are really no further ahead. In addition, one needs to be aware that if an increase in income is accompanied by the deterioration of various aspects of one’s life then it might be time to step back and reprioritize.

Taking this one step further, merely increasing after tax income which outpaces the rate of inflation is insufficient if the end goal is to achieve financial freedom. Increasing after tax PASSIVE income should be an area of focus. The objective should be to generate income without having to expend any effort.

There are certainly many ways in which to generate passive income. I, however, have only invested in residential real estate and in common shares of high quality companies so as to generate a reliable dividend income stream. I can, therefore, only share personal experiences on these two fronts.

Residential Real Estate Rental Income

Investing in residential real estate has worked out ‘okay’ for us. Many years ago we decided to acquire rental properties within walking distance to one of Canada’s largest universities. The properties are close to all amenities and a stone’s throw from public transit. Our target market was grad and post grad students.

The thought was that these students were apt to be far more focused on their studies than partying. We also figured they would only rent from us for a few years as they would leave to seek employment as soon as they had completed their studies. By targeting these groups of students we felt we would not be stuck with long-term tenants; the Ontario provincial rental regulations severely restrict the extent to which you can increase rent annually which doesn’t bode well if you have a long-term tenant.

While we have been fortunate to date with our tenants and have yet to incur a bad debt, no tenant has ever treated our properties the way would treat it.

As part of our strategy to simplify our lives, we have been liquidating rental properties and have but one remaining. The tenants will be completing their studies in August and it is not our intent to rent out the property again.

Our intent was to sell the property this year but with the onset of COVID-19, putting this property up for sale will be deferred. The property has no encumbrances and the related monthly expenses are not significant. We will, therefore, let it sit empty and will just check up on it periodically to ensure all is fine.

This is certainly not an ideal situation but I bring it to your attention to demonstrate how investing in residential real estate rental properties comes with its own set of unique challenges in the current environment.

Fortunately, generating no income from this property will not impact our lifestyle. Imagine, however, owning multiple properties where tenants decide not to pay rent because their income has dropped dramatically as a result of COVID-19!

In recent years, many investors have employed the use of leverage to acquire investment properties. The game plan was to generate rental income so as to cover all expenses (plus a buffer). In this environment, however, many tenants are not paying their rent (see here and here). Imagine…April is the first full month subsequent to COVID-19 having been declared a pandemic in North America and many tenants were unable to pay their April rent. Do you think things are going to be any better in May, June, July….?

Envision yourself being a landlord with multiple rental properties on which you are obligated to make mortgage payment and your rental income has been slashed. That will increase your stress level!

Unless mortgagors are able to renegotiate arrangements with mortgagees, it is not difficult to see how mortgagors could be in a heap of trouble within a very short timeframe.

You also have many properties which were acquired for the specific purpose of being used as short-term rentals (eg. Airbnb or VRBO). Some property owners may be fine in the short-term but I certainly cannot imagine every Airbnb or VRBO host will be able to withstand a prolonged disruption to their business.

Basic economics addresses the law of supply and demand. When one or the other changes, the equilibrium point typically changes. The change may not be instantaneous and may only come about over time.

It is not difficult to imagine a pre COVID-19 scenario where the owner of a short-term rental was renting their property 20 days/month at $150/night thus resulting in $3000/month income from which all expenses were serviced and a profit was generated. Fast forward to current times where occupancy drops to 7 days/month and $100/night is all that can be charged. As you can see, it is not difficult to imagine how short-term rental properties can suddenly become an ‘albatross’.

I do not dispute residential real estate rental properties may have been a lucrative venture for many. In this day and age and based on my outlook for the next several months, however, I think many Airbnb or VRBO owners are going to experience financial hardship.

Equity Investing Income

Investing in high quality companies from a long-term perspective has been our primary path to financial freedom.

I do not dispute equity investing is not without its risks. You MUST prudently manage your risks as I laid out in some of the first articles on this site.

Although I have occasionally invested in less than stellar companies such as General Electric Company (GE) and Manulife Financial Corporation (MFC), I have managed to extricate myself without incurring a significant loss. For the most part, the companies in which I have invested over the decades have permitted my wife/me to sleep very well at night.

I fully appreciate that we each have our own personal goals and objectives and investment style. As a result, my method of investing may not appeal to everyone.

I do, however, certainly have to question the investment strategy I see some people employing. Investing in highly speculative companies simply because they pay attractive dividends/distributions strikes me as foolish.

In addition, I have seen a portfolio on a highly followed blog which consists of ~130 companies yet the aggregate value of the portfolio is under $320,000. This strikes me as being a ‘throw mud against the wall’ portfolio.

Looking at the portfolios of several highly successful investors (eg. Wallace Weitz, Donald Yacktman) we see many focus their investments in a handful of high quality companies.

Buffett/Munger are somewhat different in that they own many companies outright through Berkshire Hathaway Inc. (BRK-b) but when you look at BRK-b’s exposure to publicly traded companies, the number of companies is not that significant; there are certainly far fewer than ~130 companies and the value of their investment portfolio is well in excess of $320,000!

We hold BRK-b shares in several accounts. This holding does not distribute any dividends but the remainder of the holdings within multiple accounts do distribute a dividend. These are all high quality companies with a track record of consistently paying increasing dividends at a rate which, on a collective basis, outpaces the rate of inflation. These companies are profitable, have competitive advantages, generate strong FCF, and their credit risk is acceptable.

I am fully aware that any company in which we have invested could cut/freeze its dividend. Although such probability is remote, I want to ensure our equity holdings can still provide us with PPFCF even if every company in which we have invested cuts its annual dividend by 30%.

Final Thoughts

The severity of the COVID-19 pandemic has yet to be fully realized. Although it was not until just recently that it was declared to be a pandemic it is utterly amazing the extent to which the financial aspects of many lives have been completely upended.

It is highly unlikely a vaccine will be discovered and tested for quite some time so I fully expect personal and business bankruptcies will surge before one is discovered; financial recovery for many will be an extremely remote possibility. I never want people to suffer financially as a result of circumstances totally out of their control. I do, therefore, sincerely hope most people will recover at some stage.

For others, COVID-19 might just be the ‘wake up call’ needed to spur them to get their financial house in order.

In an upcoming article I intend to share the steps two individuals in their early/mid 20s are taking so as to one day be in a position where they are generating PPFCF.

Stay safe!

I wish you much success on your journey to financial freedom.

Thanks for reading!

Note: I sincerely appreciate the time you took to read this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

Disclosure: I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.