How to Stay on Track During Covid-19

Apr 27, 2020 | Budget, Debt, Family, Finance, Savings, Wealth

The events occurring in the world today have forced many of us to stop and re-evaluate the true priorities in our busy lives. Since the Pursue Wealth team have transitioned to working from home, we reflect on how grateful we are to still have our health, each other, and the ability to continue supporting our members throughout this period of uncertainty.

Although our members have all been affected by the pandemic in different ways, we acknowledge this is a difficult time for everyone and we hope you are finding ways to maintain your physical and emotional wellbeing. Whether that involves going for a daily walk, scheduling in video calls with family and friends, or seeking professional guidance, it’s important we all practice compassion towards each other and ourselves during this time.

For many of us, this is the first time we have experienced an economic disruption of such scale and magnitude. Financially, this may have translated to some people receiving reduced pay, being stood down, or being made redundant, which may add a layer of burden to the current situation. Perhaps even the prospect of these events is enough to cause stress and unease. In our article today, we want to share some tips on what you can do to regain control of your finances and help you work towards a state of financial wellbeing.

Emergency Fund

The last few weeks have highlighted  the importance of having an emergency fund – savings you can depend on during a crisis – because it means having one less thing to worry about in the short term. At Pursue Wealth, we usually suggest our members save one month of income to buy enough time to sort out their affairs and come up with a Plan B.  

If you don’t have an emergency fund yet and you currently have the capacity to save, consider making this your top priority. Similarly, if you are already equipped with an emergency fund, consider topping up this account if you anticipate any income fluctuations in the following months. With many of our lifestyle expenses on hold during the lockdown, you will likely have additional funds to save towards this goal. Alternatively, you may have the option of repurposing other savings accounts (e.g. travel funds) to emergencies during this period.

Building a financial safety net is the most significant thing you can do to care for your financial wellbeing. Knowing that you are prepared for whatever comes your way will bring you peace of mind and help create a solid foundation that allows you to freely explore exciting financial goals, such as investing and buying property.

Cashflow & Liquidity

Poor cashflow management is often the root cause of many financial problems our members experience before beginning their financial journey with Pursue Wealth. It’s vital that you know how much money is coming in, how much is going out, and if there is a surplus or deficit in order to start your plan. If you are unaware of these numbers, or you are actively avoiding this information because it’s stressing you out in the short term, know that you are holding yourself back from long term financial wellbeing!

This is especially relevant if you have recently been made redundant or had to accept a pay cut. It can be uncomfortable to face the facts, but once you know what tools you have to work with, it will be easier to build your desired outcome. If this is the case for you, create or review your spending schedule to reflect your income and expenses in the next few months; then, let’s explore what additional options may be available to you.

With many businesses and employees already impacted by the slowing of the economy, the Australian government has released some stimulus packages and made it easier to access social security benefits. Below, we have provided a brief summary of three schemes which may help you increase your personal liquidity in the next 6 months.

 

  • Early access to superannuationfor those eligible, the government is allowing early withdrawal of superannuation funds up to $10,000 this financial year and $10,000 next financial year to help cope with lost or reduced income. Note that this will come at the expense of reducing your retirement savings.
  • Job-Seeker Centrelink paymentfor those eligible, you can access up to $612 per fortnight (for an individual with a dependent) to help with everyday living expenses while you are searching for work. Since the coronavirus outbreak, the government has significantly eased the administrative requirements to claim this benefit.
  • Job-Keeper Paymentfor those eligible, the government is supporting affected businesses in maintaining their staff until September 2020 with a payment of $1,500 per fortnight for each eligible employee. If you are currently being stood down, speak to your employer to see if they are applying for this scheme.

Managing Debt

We previously covered the difference between good debt and bad debt, and understanding this distinction alone is enough to place you in a better position. For everyday Australians, it is almost impossible to avoid personal debt in your life time – maybe you once used a credit card to fund a spontaneous holiday, or maybe you have a mortgage so you could buy your dream home – but having this debt during a period of crisis can undeniably place additional pressure on your financial position if you don’t have the cash to meet your repayments.

Similar to the above cashflow exercise, you can start by noting down all your outstanding debt balances and the interest rates charged for each loan. If you have a lot of uncontrolled consumer debt (e.g. credit cards, AfterPay, personal loans) the power of compounding will work against your favour and create more stress down the path. To strive for financial wellbeing means understanding when debt does not serve your long term goals and creating a plan to have this problem eliminated.

Consider the following options:

  • Identify and abolish bad spending habits!
  • Credit card balance transfer – allows you to transfer your existing credit card debt onto a new card with 0% interest for a set period. During this time, you can focus on repaying your debt without it increasing any further; or if you can’t repay the loan now, you will at least know that your balance is controlled.
  • If you have additional surplus during this period, prioritise paying off bad debt with higher interest rates or low balances.

Meanwhile, if you have a property loan and your income has been impacted by Covid-19, you can explore the following options to increase your personal liquidity:

  • Mortgage freeze – the government is working with Australian banks to facilitate a temporary pause on property loan repayments for up to 3-6 months for those who have lost or reduced their income, and for investors who have struggling / non-paying tenants as a result of the virus.
  • Switching from principal & interest repayments to interest only – this means you will only be paying down the interest accrued on your loan rather than the loan itself, however, this may significantly alleviate your financial burden in the short term.

Refinancing or fixing your loan rate – with Australia’s cash rate being at a historical low of 0.25%, many banks have passed on this benefit to homeowners. To reduce the interest payable on your loan, consider renewing your loan with a better interest rate or fixing in a low rate for the years to follow.

Seek a financial adviser

At Pursue Wealth, it is our job to keep a pulse on the economic climate and understand the ins and outs of benefits available to our members. We understand that every person has a unique financial situation, and we pride ourselves in offering tailored financial advice for millennials and wealth accumulators.

If you are in a fortunate position to be taking advantage of the current market, please reach out to our advisers for a discussion on how we can help you excel during this time. Similarly, if you wish to learn more about the government schemes available for individuals and businesses right now, we are offering webinars for businesses and phone calls for individuals where we run through each option in detail – including benefit amount, eligibility and process of application.

We hope this article has shed light on how you can improve your financial situation and work towards a state of wellbeing during this challenging period. For more information, please follow this link to book in for a 15-minute chat with our advisers. In the meantime, take care and stay safe.

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