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Managing your financial health during the COVID-19 pandemic

05 May 2020

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

With so much uncertainty about, good financial planning is more important than ever. A quick financial health-check can help you weather the pandemic and reach your financial goals.

The COVID-19 pandemic has certainly disrupted our daily lives, forcing us to close entire industries and change our behaviour overnight.

With the lockdown directly affecting jobs and the economy, many people’s thoughts quickly turned to their finances.

Corey Wastle CFP® of Verse Wealth says there’s never been a more important time to do a financial health check.

Whether or not your income has been affected, now is a good time to get your finances in order.

Create a spending plan

The first step to good financial health is understanding your spending. That’s where a spending plan, or budget, comes in.

“In the short term, people’s level of financial stress is correlated to how much money they have at the bank and what their cash flow looks like,” Mr Wastle says.

“That’s why creating a spending plan, and automating your cash flow, are the best things you can do to take control of your financial life.”

Start by identifying how much you need or want to spend in different areas of your life, like household expenses, leisure, travel and savings.

Then automate your cash flow by setting up multiple bank accounts to match the different categories.

“Automating your cash flow allows you to understand exactly what’s coming in, where it’s going and what you’re going to save every month,” Mr Wastle says.

“That gives you a sense of control and makes planning and forecasting for the future much easier.

If you already have a spending plan in place, review it now and check that your expenses actually match what’s in your plan.

Make use of savings

Gym memberships, haircuts, travel, takeaway coffee and lunches… the list of expenses we’ve been asked to put ‘on hold’ is almost endless.

With social distancing measures limiting our discretionary spending, many people will find a little more cash than usual building up in their accounts.

While there’s not much we can do about the lockdown, it does create an opportunity to reevaluate your spending habits.

So if you have to go without your daily flat white, think about ways you can redirect those savings to improve your financial health. Below are three areas to consider.

1. Build up your cash reserves 

If there’s one thing the pandemic has shown us, it’s the importance of having an emergency fund to protect against the unexpected.

If you don’t have one already, set up a high-interest account or use an offset account to reduce the interest on your mortgage if you have one.

You should aim to build up enough cash in your emergency account to cover six months of living expenses, including housing, to protect you in the event you lose your job, fall ill or can’t work.

Ideally the funds will be in cash, so that they’re easily accessible and aren’t subject to market fluctuations.

2. Pay down debt

We’re pretty big on debt in Australia, using it to fund everything from housing to cars to travel.

But falling behind on your loan repayments, or struggling to juggle debt and living expenses, can lead to serious financial stress.

So take anything extra you’re saving and use it to pay off your credit card, personal, home or car loan. Every little bit counts, as it helps reduce the interest you’ll pay on the balance going forward.

3. Supercharge your super

Once you’ve built up your cash reserves, and have your debt situation under control, you can look at putting any extra savings towards investments, like superannuation.

Mr Wastle says contrary to popular belief, now is actually a good time to invest in your superannuation.

“If you’re getting close to retirement and you have capacity, now is a great time to be making additional contributions.

“When you put money into your fund, you’re buying good assets at lower prices, and that means higher long-term returns.”

For those nearing retirement, or reliant on superannuation income, the recent market fluctuations can feel worrying. But now is not the time for sudden changes, or you could be undoing years of hard work.

“For some people there’s a lot of fear around what might be happening in the short term,” Mr Wastle says. “Switching to cash can feel safe, but taking this course of action is almost certainly locking in the losses.”

“Remember that markets are forward looking and will generally recover before the economy does.”

Instead, Mr Wastle says it’s important to understand your asset allocation, which should be appropriate for your age and financial goals.

“If you’re close to retirement age, your superannuation settings should help insulate you against market fluctuations,” he says.

Get advice from a finance expert, such as a CERTIFIED FINANCIAL PLANNER® professional before making any major changes to your superannuation.

While the COVID-19 pandemic won’t be with us forever, good financial management will. By taking a few simple actions now, you can help protect your way of life far into the future.

Seeing a financial planner can help you assess your overall financial wellbeing and make a plan to get your finances into shape. You can use our Match My Planner tool to reach out to a CERTIFIED FINANCIAL PLANNER® professional near you.