With the coronavirus pandemic rearing its head in Melbourne and Sydney once again, many of us are now required (or may be in the near future) to self-isolate. It’s little wonder many of us are worried about how this may impact our financial situation.
For those able to work from home this is a great option. But what about those of us who aren’t able to work from home? How will this affect our income? And how will this be compounded if you choose to keep your children home from school or childcare centres (or they’re closed) and you need to take time off from work to take care of children?
This is a unique situation that is most likely going to affect everyone to certain degrees. Whether you are in self-isolation with children or working in industries like hospitality or travel that have been seriously affected, we all need to stick together.
How to prepare
For many of us, taking time off to self-isolate or to take care of children will disrupt our incomes. While we may get by working from home or be on paid leave entitlements, there may be a period where we need to take unpaid leave.
While this may be out of our control, what we can control is how we prepare. Taking steps to prepare for a loss in income is smart, even if that situation never materialises. We also know that the likelihood is that the more challenging the situation becomes, the more assistance will be available from the government.
Talk to your employer about your options should you need to take time off. Have a look at potential scenarios to determine what the impacts to your income may be so you can prepare. You may want to develop a financial forecast with your financial planner which considers the various scenarios.
Now is a good time to review your income protection policy or consider getting income protection insurance. This will cover you if you get coronavirus and can’t work, but keep in mind it won’t cover you if you’re made redundant.
Hacks to free up cash flow
Freeing up your cash flow is a common-sense way to reduce your financial burden month to month and offset any disruptions to your income. Some options to free up cash flow include:
- Drop non-essential regular expenses such as regular subscriptions such as magazines
- Reduce the number of days your children attend daycare or take them out completely to reduce your costs (in some locations childcare costs are being waived, so this only applies if you’re back to paying fees)
- Cease any voluntary super contributions. You can resume these at a later date when you no longer require the cash flow to meet your day to day expenses
- Request a mortgage repayment holiday from your bank or lender. Talk to your mortgage broker to organise
- Move personal insurances such as income protection, life insurance and TPD insurance into your superannuation. The costs will be paid from your superannuation balance, freeing up cash flow. Talk to your financial advisor to see if this is the right option for you and to discuss the impacts
- Negotiate with your providers to pay annual bills in more frequent instalments. That way you won’t be hit with a big bill at once, preserving your cash flow in the short-term
- If you are self-employed you may be able to set up a payment plan with the ATO to pay tax in instalments or arrange for a payment holiday during this period
- If you are worried you won’t be able to afford your rent, you should talk to your landlord or the property manager about your options. Look at the rent relief rules your state
- If you have equity in a property, speak to your bank about accessing cash from the equity in your property to help for a rainy day
- If possible, establish an emergency savings fund with any available cash that is dedicated to cover you in periods when your income is disrupted. Don’t touch it unless necessary
- Set up or review your budget. A budget will give you a clearer idea of your spending and where there may be other costs you can drop or reduce, at least in the short-term
- Make sure you’re accessing any Government assistance you’re eligible for, including any state-based assistance.
Amid the uncertainty, the best way to protect your financial situation is to be prepared, do your research and talk to your financial advisor. Having an action plan in place is a great start.
N.B: At the time of writing, this advice was given on current circumstances. This may change as circumstances or government advice changes.
David Hancock is a director and Senior Financial Planner at Montara Wealth. His role is to oversee the running of the business and ensure the delivery of exceptional service and strategic based advice to clients. David is well known for developing strong long-term relationships with clients and is passionate about helping them identify and implement life-changing financial strategies. www.montarawealth.com.au