To help you navigate your finances and regain a sense of control over your cash, we’ve partnered with our Pitch For Purpose 2020 Finalists Jessica Brady and Chandel Brandimarti from Ladies Talk Money to share their top five tips for taking care of your money during COVID-19.
None of us could have predicted the proverbial sh*tstorm that 2020 had in store. Over the past few weeks, the way we live and work has been thrown upside down. We’re staying in, often living and working from the same space, with the entire family in tow. This time of physical distancing and global uncertainty has brought up a whole host of challenges; none more so than stresses and concerns about how to manage our money.
Tip 1: Revisit your budget and get clear on your fixed costs
No matter what your situation looks like, now is a good time to drill down on how you’re spending your money and where you can make changes if you need to. If you have the time (and headspace) to reflect on how you’re managing your cash, here are a few places to start…
Get clear on what your ‘fixed’ costs are (those that come in regularly and generally cost the same each time, such as your rent or mortgage repayments, phone bill, insurance, school fees etc.). Then, understand your ‘variable’ costs (those that you have some level of control over, such as food, eating out, online shopping, even donations etc.).
TIP: Set up separate accounts for both types of costs and add cash to them weekly or fortnightly from your income. This will ensure that you always have enough money for bills (even big annual payments like car rego), as you’ll have put away money each week for it. Plus, some providers offer discounts for making payments annually instead of monthly. So, check to see if you can score yourself a better deal! By separating your spending account from your bills, savings and emergency accounts, you’ll be able to see exactly how much cash you have left to spend for the week at any given moment.
Tip 2: Understand the difference between savings and ‘emergency’ funds
We all know the importance of having extra funds saved away for a rainy day. Well, think of COVID-19 like a global rainy day! But should we be putting all our savings into one place? And if not, how should we manage our savings to ensure we have separate pots of money for emergencies and big-ticket items?
What is an emergency fund?
A very popular piece of financial advice is to make sure you have saved an ‘emergency fund’ of around 3-6 months of living expenses that you can use as a financial safety net in an ‘emergency’ such as, we dunno, a global pandemic…! Emergency funds are also designed to cover things like:
– Unexpectedly losing your job
– Suddenly becoming the sole earner in your household
– Your car breaking down
– Needing some pricey dental work
In contrast, things like saving for a holiday or upgrading your car aren’t ‘emergencies’. In fact, these big-ticket items are what a savings account is for. Obviously, if you didn’t already have an emergency fund and you’ve lost your job due to COVID-19, this advice is a bit unhelpful and you’ll be having to look at other ways to get by during this time. That said, we hope in that annoying silver lining kind of way that this reminds every lady about the importance of an emergency fund, and that even a few bucks a week squirrelled away adds up over time.
TIP: If you’ve got an emergency fund (and you’re finding cash flow is a bit tight at the moment), now is the time to use it or top it up for some potentially tough times down the road.
"Remember: support and flexibility are available, and starting proactive conversations with your lender or landlord is the best way to access them."
Tip 3: Negotiate for a better mortgage rate or rental payment arrangement
Whether you’re renting or paying off a home loan, having open and honest conversations with your landlord or lender will put you in the best position to navigate any financial challenges that may come your way. Remember: support and flexibility are available, and starting proactive conversations with your lender or landlord is the best way to access them.
For those with a mortgage, possibly one of the only silver linings to all of this *CRAPOLA* is that, right now, mortgage rates are the absolute lowest they’ve ever been. Ever. So, how can you make the most of low mortgage rates?
– Check your mortgage rate and, if it sucks, get it changed. To be competitive (i.e. in line with current rates) it should start with a ‘2’. If your rate is less than impressive, give your bank a call, tell them you’d like it reduced, and see what they come back with.
– Consider switching to a cheaper loan product. If, after you’ve negotiated, you’re still unhappy with your rate, it could be the right time to look at refinancing your loan to a different bank or switching to a cheaper loan product at your current one. Of course, there are nuances in terms of whether you have a fixed or variable rate loan, so just speak with a mortgage broker you trust, to make absolutely sure that you’ll be doing yourself a favour not making things worse.
– Use your offset account (a.k.a. the transaction account linked to your home loan) if you have one. It’s wise to keep as much of your money as possible in there, as it helps to reduce the amount of interest you’ll pay on your loan.
For those who are renting, you also have plenty of options if you are facing financial difficulty during this time. If your income has been negatively affected by Coronavirus, then you’re understandably feeling anxious about how you’ll continue paying rent. Sending big love to you lady, that really sucks.
You might have heard that the Government wants a six-month halt on evictions for Australians facing financial distress in response to COVID-19. When it comes to residential tenancies, however, it’s up to each state and territory to create specific laws (meaning the rules are different depending on where you live).
So, what should renters do if you’ve been financially impacted by the Coronavirus?
– Be proactive and transparent about the financial difficulties you might be facing with your landlord or rental agent.
– Look up what is available in your state or territory regularly.
– Get anything you agree to in writing (such as a rental reduction or pause).
– Be cautious about agreeing to rental deferrals (where you have to pay back the rent later) as this may cause you significant financial hardship in the future.
Tip 4: Bolster your retirement savings by making additional super contributions
If you can, adding extra money to your super account could be a fantastic way to bolster your retirement savings. But, there are a few things you want to consider before doing so during a pandemic:
– Do I have a good emergency savings buffer? If no, start here first.
– Do I want to use ‘before-tax’ money (concessional contribution) or ‘after-tax’ money (non-concessional contribution)?
TIP: Make sure you factor in that there are contribution caps (and also bring forward rules) on super, that can limit how much you can contribute before being hit with extra tax. So, do your research and get across these thresholds before you start. Want to find out more? MoneySmart has a super optimiser calculator to help you work out which contribution type could be right for you. And, of course, if you are now without any disposable income to contribute, adding extra money to super right now might not be the best thing to do.
Tip 5: Keep calm about the market
We don’t need to remind you that the share market has been incredibly volatile in recent weeks. Whether you’re currently invested or are curious about whether now is the right time to start, here are a few important things to keep in mind…
If you’re currently invested and worried about the markets, try to stay calm. We know this sounds a little condescending (especially during a global pandemic), but it’s really important that you don’t let your emotions take over. Investing is all about playing the long game.
So, before you sell everything and get out of the market entirely, read this:
– Selling at the bottom of the market ‘locks in’ your losses, meaning it will take you longer to recoup these losses (or even break-even).
– It’s almost impossible to predict when markets will recover. Selling now could mean missing out on those few very good days that could make a massive impact on your long-term returns.
– Markets are cyclical, meaning long-term investors need to expect periods of volatility and downtowns before we see corrections.
– Don’t throw out your investment strategy due to fear or uncertainty. Remember why you started investing in the first place and avoid deviating from your long-term plan.
If you have some extra money set aside for investing (and you’re sure you won’t be needing it in the near future for bills or rent or keeping yourself healthy), now could be a really great time for you to get started with investing.
So, what should you consider before diving into the market?
1. Define your goals: What are you investing for? From enabling an early retirement to building passive income, it’s important to align your investment strategy with clearly defined goals.
2. Determine your risk profile: All investment strategies come with a degree of risk. So, it’s about determining how much risk you are comfortable taking on and understanding the expected return.
3. Map out the costs: More often than not, there are unexpected costs that crop up when investing. Make sure to understand and accept the true cost of each investment across its lifespan.
4. Understand the investment timeframe: Investing can be an emotional journey and, when your investment strategy is influenced by your emotions, this is where you can make poor investment decisions. While you can’t control the markets, you can manage how you react to its swings. The expected timeframe of the investment should be considered when deciding what to invest in.
About Ladies Talk Money
A collaboration between the unapologetic and badass women of Pure Finance and Fox & Hare Financial Advice, Ladies Talk Money tackles the complex relationship between women, their finances, and the barriers keeping them from achieving true financial equality. They are on a mission to demonstrate what open and honest discussions about money look like, and change women’s financial futures – one conversation at a time.