If your household budget has taken a hit during the current downturn, here are some tips to help you get through to the other side.
This global pandemic has created overwhelming anxiety. Many people are anxious not just about the virus, but the resulting financial pressure and uncertainty.
If you have lost your job or income, finding a way forward can feel impossible. Let us help you come up with a solid, realistic plan to see you through this rocky time -and beyond.
1. Take stock of where you’re at right now
The impact of Covid-19 will be different for every household. “There will be vastly different experiences,” says Craig Sankey, a financial planner with Industry Fund Services. “Some families may get through relatively unscathed and others will see a major impact to their incomes and finances, and as a result their financial goals could be severely impacted.”
Sankey recommends households start by looking at what’s actually happening to their money. That means downloading bank statements, opening envelopes and thoroughly assessing what’s coming in and going out. It can be uncomfortable to look at your finances head-on, but knowing your true financial position will help you access the support you need and create a realistic budget to help you move forward.
2.Find out what support is available
The government has made a number of changes to the financial support on offer for individuals and businesses during the crisis. Before you panic about your current position, find out what you’re eligible for and incorporate it into your budget.
JobSeeker, for people looking for work, has effectively doubled, with waiting periods waived if you have lost your job. In addition, eligible pensioners, seniors, carers and other payment recipients will receive two economic support payments of $750 each. You may be eligible for the new JobKeeper payment, which is paid through your employer (or to sole traders). There are also other options worth investigating if you’re self-employed or running a business.
If you are experiencing severe financial distress or mounting debt issues, it may be helpful to go a step further and contact a financial planner or Financial Counselling Australia.
3. Be realistic about your budget
Reducing money stress can make everything in life a bit easier. Having a budget and setting priorities can help.
- Track your spending. Apps such as Pocketbook sync with your bank accounts, so all the information you need is available in one place right away.
- Sort your needs from your wants. What are the real essentials, and what can wait until later?
- Take what you learnt from step 1, and put together a budget using an app like Mint to help you see exactly where your money is going and how well you’re sticking to the plan.
- Review your budget as you go. Is it achievable? How well is it working? What needs to be changed?
4. Get to know your super
You have more control over your super than you might realise. If you have multiple super funds, rolling them into one can help you save on fees and duplicate insurance premiums. “When selecting the fund to retain, you should consider performance, fees and any other criteria that are important to you,” Sankey says.
There are also other ways you make sure your super account suits your needs. “Review your insurance within your superannuation fund,” Sankey says. “For example, do you need to top up your cover? Or are you paying premiums for excessive cover that you don’t need? Finally, you may wish to review your choice of investment option.”
Your super fund or a financial planner can help you identify the best options for you, based specifically on your attitude to risk and return.
Being more deliberate with your choices could save you in the long run.
5. Talk to your bank
Many banks are offering extra support to customers facing financial hardship. Yours might have extra redraw facilities, bonus interest, or loan pauses, freezes or holidays. If you have lost income, these options can help you through a tough time.
Before you make a decision, be sure you understand what you’re signing on for and have a plan to catch up on missed payments as quickly as possible. A loan pause is not a mortgage holiday: interest will still accrue on the outstanding amount, and be added to your loan balance at the end of the pause.
6. Review your loans and financial products
Now might be an ideal time to review your home loan and other debts. Interest rates are low, and refinancing or consolidating could save you thousands of dollars. Reviewing your accounts is a good habit to get into even when you’re not in crisis - lenders frequently launch new products that could better suit your lifestyle and financial needs.
Prioritise setting up an emergency fund, too. Most banks offer high introductory rates for new savings accounts, which means you can (temporarily) grow your balance faster.
7. Assess the risks of accessing your super early
The government has relaxed the criteria for early release of superannuation. Eligible people will be able to access up to $10,000 before 30 June, and another $10,000 afterwards.
Sankey cautions against rushing into withdrawing these funds. “Super is designed to provide for your retirement,” he says. “Taking funds out now will take away one of the great advantages of superannuation: long-term compounding returns. It’s also important to find out if this will affect the insurance you have in your super and whether there will be enough funds to continue paying the ongoing premiums.”
Using super as a “rainy day” account can have a much bigger impact than you might expect. What you withdraw during Covid-19 might quadruple over the next 30 or 40 year.
The wider economic impact of this pandemic is likely to be severe and it could be years before the economy fully recovers. While everyone’s experience is different, new support measures from governments and financial institutions won’t stick around indefinitely. We should all be planning to be self-sufficient as soon as possible.
Future proof your finances with Industry Super’s guide to coronavirus and your super.
Consider your own objectives, financial situation and needs before making a decision about superannuation because they are not taken into account in this information. You should consider the Product Disclosure Statement available from individual funds before making an investment decision.Originally producedcontent by Guardian Labs Australia to a brief agreed with and paid for by IndustrySuperFund.The original content can be accessed here: https://www.theguardian.com/industry-superfunds-supercharged-future/2020/jun/11/7-steps-to-future-proof-your-finances-during-the-covid-19-downturn
*The above material, whilst correct at the time of publication may include references or statements which are no longer current.