If you think storms may lie ahead, it makes sense to prepare your craft for choppy waters. With Australia facing continued economic uncertainty, it may be time to take stock of your finances and get in the right shape.
First the good news. The Australian economy fared better in the first quarter of 2020 than many other countriesi. By the end of March, the economy only contracted 0.3%, compared with 2.0% in the UK and a whopping 9.8% in China.
More challenging times may lie ahead. A century on from the last global pandemic, this looks like a downturn unlike any other in living memory. Back in 1990, Treasurer Paul Keating lamented the “recession we had to have.” This time around, we’re trying to thaw an economy that’s been deliberately placed into hibernation. It isn’t something we’ve seen before, so lessons from previous recessions may not apply.
However, if you’re worried about the threat of redundancy, your investments or your retirement plans being disrupted, there are things you can do to secure your financial lifeboat.
- Revise your budget
A realistic budget helps you get a clearer view of what you can and can’t afford. If you don’t have one already, you can create a view of your total income and expenses, on a weekly, fortnightly, monthly or yearly basis.
- Decide what matters most to you
Reassessing your budget helps you decide what’s essential and what you can put on hold, or perhaps ditch altogether to lessen the strain on your household finances.
Essentials might include your mortgage or rent, utilities or car insurance if you need to keep running a vehicle. Remember that even if something is essential, you might still be able to make a saving on it.
Look for a better deal on comparison sites like Finder, which can help you find potentially preferable offers on everything from car insurance to shopping.
Low-interest rates are likely to remain for some time, so this might be a good time to approach a mortgage broker to see if there’s an alternative that’s right for you.
- Pay down and consolidate debt
Debt consolidation is one way to take control of your finances and potentially pay off your debts sooner.
This means combining or consolidating your debts into one loan with, ideally, a lower overall interest rate. Assuming you can cover your repayments, the lower interest rate means you’ll pay less interest and pay off your debt sooner, as long as you continue to make the same repayments on the original debt. Otherwise, the consolidated debt is spread out over the life of the bigger loan.
This approach might also help you simplify your finances by reducing multiple repayments for credit cards, store cards and a car loan for example, into one monthly payment.
Fees and conditions may apply. Check your existing loan terms to see if any early termination fees apply. If you are applying for a new loan, confirm the application fee costs and eligibility criteria.
Keep in mind that debt consolidation will only be effective if you are disciplined about making your repayments. And before making a decision, speak to us.
- Keep your eyes on the horizon
As with most investment and super strategies, it helps to look long term rather than thinking only of the next few weeks or months. It’s easy to get discouraged when many forms of media concentrate on negative or shocking news.
Finally, as AMP’s Head of Investment Strategy and Economics and Chief Economist Shane Oliver points out, anyone who got too negative for the long term in the last major pandemic of 1918-19 might have missed out entirely on the ‘roaring twenties, a decade of economic growth and widespread prosperity.
Here to help
Remember, if you are feeling overwhelmed or need to talk to someone about how you are feeling right now, you can access free services anytime, including:
- Lifeline: 13 11 1
- Beyond Blue: 1300 22 4636
- Mental Health Line: 1800 011 511.
To discuss your financial goals, get in touch with PSK Financial Services on 02 9324 8831 to organise your complimentary consultation today.
Take the 5 Minute Financial Health today to understand and determine your financial priorities Mums CFO Complimentary Financial Health check (Courtesy of PSK Financial Services)
i ABC News, Australia in its first recession in 29 years as of March quarter GDP shrinks
©AMP Life Limited. First published June 2020
PSK Financial Services Group Pty Ltd (ABN 24 134 987 205) are Authorised Representatives of Charter Financial Planning Ltd (AFSL 234666), Australian Financial Services Licensee and Australian Credit Licensee. Information contained in this article is general in nature. It does not take into account your objectives, needs or financial situation. You need to consider your financial situation before making any decisions based on this information.