COVID-19 doesn’t just have us concerned for our health. Its financial impact is touching everyone. The financial system is in turmoil, creating unprecedented volatility and uncertainty. People are losing businesses, jobs and having their hours cut, causing enormous financial stress. Here we share our top advice to help you weather the financial impacts of COVID-19 and come out the other side.
1. Set an emergency fund
At this time of unprecedented uncertainty, it’s an emergency fund is more important than ever. Your emergency account is separate to your savings account; it’s a pot of cash specifically set aside as a contingency fund for when the unexpected happens.
A stash of even $5,000 could keep you going for several weeks and will greatly reduce financial stress, at a time when stress levels are already very high. It will also help you avoid opting for high-interest borrowing options because you’re desperate.
Think of some creative ways to set money aside. Perhaps you’ve had a cancelled holiday you’ve received a refund for. Use the time in lock down to declutter and sell items you no longer need – people will be looking for bargains at this time.
2. Forecast your cashflow
Consider the likelihood of your income changing in the coming months, as well as major expenses on the horizon. If it’s possible your income will reduce, start adjusting your budget immediately and estimate whether you’ll be able to cover your expenses.
Knowledge is power, and if you know you’ll have a shortfall, there are things you can do to help plug the gap. You may want to look into emergency funds, government benefits, employer benefits, insurances, home equity lines and loan options. If you don’t think you will be able to pay a bill, speak up sooner, rather than later. Providers are likely to be more lenient than usual, especially if you’re proactive.
3. Reduce your expenses
With so much uncertainty right now, it’s a good idea to review your budget and reduce expenses where you can. Given we’re required to isolate, many of us will be finding this easier than before. Financial Spectrum has online budgeting tools to help.
It’s a good idea to direct any savings into an emergency fund in the event your employment situation changes. Once you have a healthy emergency fund, you may like to continue to save to take advantage of investment opportunities as the market bottoms out.
4. Review your mortgage
With interest rates dropping to an all time low, there are some great mortgage rates out there. It could be a great time to speak to one of our mortgage brokers to see if you can get a better deal, especially if your interest rate is 4% or higher. You could save thousands of dollars and years of your repayments.
If you’re concerned about meeting your mortgage repayments, there are options available to you. Chat to your broker to find a solution that’s best for your situation.
5. Check what government relief you are eligible for
The Australian government has issued a range of stimulus packages to help us ride through this crisis.
6. Stay invested
We’re experiencing unprecedented marketing volatility and it’s completely natural to want to stop the bleeding in your portfolio. Our brains are wired to take action to protect us from loss.
However, while there will be more volatility, drops, recovery days, maybe a false recovery, history tells us there will eventually be an ultimate recovery. Even if you invested every dollar right before the Great Recession hit and the market dropped 57%, your money still would have come close to doubling over the 10-year time period that followed.
If you don’t need to touch your portfolio for the next 10 years, pause before making any emotionally charged decisions. Remind yourself that you are strategically staying invested for the long term, and based on historical data, the likelihood of an eventual market recovery is very strong.
7. Protect your family and business
Australians are renowned for their “she’ll be right” attitude and we often think things will never happen to us. COVID-19 has changed all that, as it has shown us that no one is immune.
This is a good time to make sure you have adequate insurance in place to protect yourself, your family and your business when the unexpected happens. Shop around for the best policies for your needs. If you’re not sure about what policies you need, speaking with a financial adviser will help keep you protected if things go wrong.
8. Get professional financial advice
You might think you can’t afford to get financial advice right now. But you may not be able to afford not to.
Whenever we are in the thick of a problem, it’s hard to find our own way out. A good financial advisor can help you find solutions that you may not have considered or even know about. Better still, they can help nip small issues in the bud before they become big problems.
These are seriously challenging times for everyone, and the right advice will see you coming out the other side.