Financial experts Stevie-Jade Turner and Marisa Broome explain how you can take back control of your finances in the wake of COVID-19.
We might have flattened the curve, but the effects of the coronavirus outbreak are far from over. Although restrictions are easing and everything from gyms and beauty salons to ski resorts are starting to pick back up, many Australians are now experiencing ‘return-anxiety’, and thousands are experiencing financial distress.
According to the Australian Bureau of Statistics, employment rates have dropped by 7.3 per cent since the peak of the pandemic in March this year, with restrictions on businesses causing hundreds of thousands of workers to either lose their job entirely or be faced with reduced hours until the crisis passes.
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“A lot of families have been hit with job loss and uncertainty,” notes Stevie-Jade Turner, senior advisor at Tribeca Financial. “The loss of one income or even both incomes in a usual two-income household where there are children and a mortgage will obviously cause financial strain and emotional stress, too. It’s not just a matter of feeling like you need to make temporary inconvenient sacrifices, it’s the thought of ‘What if this goes on longer?’, ‘What if we lose the house?’.”
Marisa Broome, chair of the Financial Planning Association of Australia (FPA) and owner of wealthadvice.com.au agrees, noting that the health crisis of COVID-19 has become an economic crisis that has left many Australians feeling unprepared when it comes to their finances.
“Everyone has been impacted one way or the other,” Broome adds. “If you’re close to retirement, you may be anxiously watching how your superannuation balance has been affected by volatile financial markets. If you’ve saved a deposit and have been house hunting, perhaps you’re wondering if now is the right time to buy.
“The shutdown of the economy due to COVID-19 has taken a toll on many businesses both large and small. People have lost their jobs or are working fewer hours and a lot of borrowers are struggling to make home loan or rent payments.”
While Turner and Broome admit that the real financial impact of COVID-19 won’t be known for some time, both experts agree that no matter your current financial situation, there are ways safeguard your funds and come back stronger than ever.
Your financial action plan
1. Make a plan
According to Broome, the first step to getting organised is to put together a budget. “Do you really know where your money is going? When I ask my clients if they have a budget they all say yes but when we sit down and get into the details they don’t really know where they spend money,” says Broome. “It’s really important to review all spending but especially the discretionary expenses such as clothes from basics to luxury goods, and the convenience items like takeaway meals etc.”
Once you’ve calculated your income vs expenses, Broome says to stop using pay-later services. “If you can’t afford it, don’t buy it, and swap your credit card for a debit card so you only spend what you have and don’t run up a bill.” If you need a credit card for emergencies, Broome says to check it comes with no or low fees.
Turner also says to use this time to take better control of your cash flow. “If you’re someone who feels that you’ve not really thought too much about your money before, use this time to take control. Set up strong structure, know exactly where your money is going and why, so that once COVID-19 is over, you’ll be able to adapt faster to whatever life throws at you.”
2. Update your policies
Once you have your budget written up, it’ll be easier to identify expenses that aren’t super necessary. “A quick win is to look at subscriptions,” tips Turner. “They are easily the most silent drain on finances and go by unaddressed for some time because we get ‘too busy’.
“Also, shop around and don’t let laziness cost you. Car, house and health insurance and gas and electricity providers all make money when you set and forget, so reviewing these expenses will keep your finger on the pulse of what is a reasonable cost to incur. See if you can get the provider to sharpen their pencils, or if you find a better deal then switch.”
3. Seek outside help
If you’ve lost your job due to COVID-19, both Turner and Broome say to make the most of the new JobSeeker and JobKeeper initiatives.
After that, don’t be scared to turn to an expert for help. “Financial planning isn’t just for rich people or for those about to retire – it’s for everyone that wants to be financially organised and goal-focussed,” says Broome, and Turner agrees.
“Having an objective look at the situation is helpful, and that’s where it can help to have a financial planner or third party to work with who will look at the numbers, understand and empathise with the emotion of the situation but not let it drive the decisions,” Turner explains.
Depending on your financial situation, it might be best to sell your house, release equity or downsize, and maybe you don’t really need a second car – but these decisions can be hard to make on your own, which is why talking to an expert can help.
“Can and should you pause your mortgage repayments? It’s worth talking to your mortgage broker first, as it can have other implications for you down the track or if you are considering a refinance,” Turner adds.
4. Supercharge your savings
Building up your savings account might seem impossible if you’ve lost your job or taken a pay cut, but there are ways to cut costs.
“If you have certain payments that have been temporarily suspended due to COVID-19, such as day-care costs, take advantage of that money and put it away in an account you won’t touch,” says Turner. “Pretend you’re still spending it on that expense – don’t think of it as extra money for spending.”
Even if you haven’t lost your job, you’re probably spending money in a different way, so take advantage of your current situation. “There are plenty of people out there who aren’t going to brunch or Pilates like they used to, and those dollars can easily accumulate in your bank account,” Turner notes.
“Unless you suddenly lose control with online, you should be able to create decent surpluses each pay. If this is you then now is the perfect time to get ahead on the mortgage, build up that emergency fund or start investing.”
If you have savings, Broome also notes that the current low interest rates can work in your favour. “You could possibly find that there are opportunities to buy assets at a better price,” she explains. “Whether it be investing in the share market or buying your first home or an investment property, if you do your homework you might find ways to invest at a better price.”
5. Think twice about accessing your super
“I would exhaust all options before accessing your super for two reasons,” explains Turner. “First, it will have a far bigger set back implication in the long-term due to compound interest. You might get your $10,000 now, but you could be robbing your future self of anywhere between $20,000 to $80,000 as a result, depending on how close you are to retirement.”
The other reason Turner advises against accessing your super early is the fact that we’ve experienced a market drop, which means you’ll incur the losses if you withdraw them. “Up until a transaction occurs, a drop in markets is only a paper loss you can always recover from if you give it the time to do so,” adds Turner. “Accessing super could still be a helpful avenue to explore, but every situation should be looked at carefully to avoid putting yourself in a worse position later.”
Even if you’re not thinking of accessing your super now, Broome says it’s worth giving it a tune-up. “Take a closer look at your superannuation and where is it invested. If you have more than one fund, consider consolidating it into one and save on multiple admin fees, but be sure to consider the implications on any insurance you may hold within the policy,” she explains.
Where to get help
If your finances have you feeling anxious or worried, or even if you’d just like to get a clearer picture, both Turner and Broome say to ask for help if you need it.
“Don’t struggle on your own,” says Turner. “Many professionals are offering free consultations to assist those in need (including us at Tribeca Financial). It can help to have an objective person to talk even if all it does it clear your mind and help you prioritise what to focus on.”
Here are some resources that can help:
For… Financial aid
Department of Social Services
For… Financial advice
National Debt Helpline
For… Mental health