As COVID-19 restrictions begin to ease in Queensland, and Victoria and New South Wales experience a second wave, a new normal is emerging for families, businesses and employees as many come to terms with the financial impacts of lockdown. While the possibility (or reality) of adapting to a life with reduced income may sound like more bad news, it’s important to remember that careful thought and financial planning, no matter what your situation, can help you achieve what really matters to you.
Even though it’s too early to say in detail what the post-lockdown economy will look like, it’s clear that job losses, reduced hours of work, lower rates of pay, and the deferral of dividend payments by listed companies may all affect household budgets in the months ahead.
These FIVE tips aim to help you take calm, logical and positive steps forward so that your financial circumstances, now and if they change, will assist in achieving your financial and lifestyle goals and protecting what really matters most to you.
#1 Review your financial goals
After the wide-reaching impacts of the pandemic, now is the time to reflect and review your financial goals and long-term vision. Your financial and lifestyle goals may need to be adjusted to reflect changing circumstances and the economic and social environment. Your financial plan may need to more flexible to take account of these changes. Now is an important opportunity for you to build increased flexibility and resilience into your financial planning with a view to being as prepared as possible should any further unexpected events take place.
#2 Continue building your savings
It would be understandable if you felt like indulging in a little ‘retail therapy’, but it’s very important to bear in mind your longer-term financial health and maintain (or put in place) appropriate savings strategies.
Consider using a mortgage offset account and/or a savings account.
A mortgage offset account has two key benefits. Firstly, the funds you save in this account will ‘offset’ the interest on your mortgage, effectively reducing the amount you pay. Secondly, rather than lock that money up, an offset account allows you to build a buffer of cash you could redraw if your cashflow was to diminish.
A savings account has two advantages. You may be able to access funds on an ad hoc basis and secondly, your savings may grow further by compound interest earned. This strategy may be appropriate post COVID-19 to enable you to continue saving even modest amounts as you find your financial feet again.
Utilising these strategies could help to build an emergency buffer (for example, consider 4 – 6 months of living expenses) and builds your financial resilience, putting your mind at ease for when the unexpected happens.
#3 Conserve your cashflow
Take the time to review your household budgeting to help you understand your cashflow and how you are spending your money. From there, you are better placed to get your finances under control by implementing a cashflow spending plan that is aligned to your financial goals. If you are coming towards the end of a repayment holiday, now may be the time to review and more effectively manage your debt.
For the medium and long term, a cashflow spending strategy could prove helpful for controlling your cashflow and working towards your goals. Please click to read more about our cashflow management solution.
#4 Understand your debt position
While now may not be the time to take on more debt, it is the time to understand your debt position. With knowledge of where you stand financially, you can manage your debt more effectively, which includes paying down ‘non-deductible’ debt. ‘Non-deductible’ debt is so-called because assets purchased using this type of debt usually don’t earn an income and therefore the interest generally isn’t tax deductible. Examples include credit cards, personal loans, car loans and family home mortgages.
#5 Consider opportunities with superannuation
Given the impact of COVID-19, you may not have the capacity to make additional tax effective contributions to superannuation. This opportunity may not, however, be lost.
The catch-up concessional contribution may be available to you if your superannuation balance was below $500,000 at 30 June 2020 and you didn’t use your full concessional contributions cap of $25,000 in the 30 June 2020 or 30 June 2019 financial years. The catch-up provision could allow you to make your full $25,000 of concessional contributions to superannuation this year, as well as back fill prior years’ concessional contributions. If you held off making additional contributions given the impact of COVID-19, this may a tax effective way to make sure your retirement planning is put back on track.
Your next step…
It will take time for the economy and our society to adjust to the impacts of COVID-19. But if past shocks have taught us anything, it’s that financial markets and businesses do recover in time.
For now, keep an eye on your finances and seek the professional help you need to take CONTROL so you may achieve what REALLY matters most to you.
For help to review your finances post COVID-19, please don’t hesitate to contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007 or info@stratusfinancialgroup.com.au
Stratus Financial Group helps families, professionals, executives, business owners and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions.