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.
Who have you been turning to for money advice in 2020? We bring you six insights from leading financial planning professionals who have been helping their clients feel more confident in their finances this year.
A significant number of Australians have experienced changes in their lifestyle and finances in 2020. Our recent Money and Life Tracker: COVID edition survey found that four in 10 people have lost income this year and almost a quarter (23%) are experiencing high levels of financial stress.
So it’s no wonder many Australians have been looking for professional advice on how to manage their finances during this time of change to bring them greater peace of mind about this future. To get you thinking about where you could make a positive difference to your finances in the coming year, here some key advice areas financial planners have been talking about with clients during 2020:
For many investors the media noise surrounding the COVID19 pandemic and accompanying economic commentary can be overwhelming, but it is important to put all of this into perspective. Market volatility is normal and with a historically low cash rate, investors need to retain some exposure to growth asset classes.
One strategy that has stood the test of time is ‘dollar cost averaging’. For many Australians this happens automatically when their employer makes regular Superannuation Guarantee Contributions on their behalf. By investing gradually over time, investors can reduce the risk associated with investing a large lump sum at any single point in time. This is a strategy that investors should adopt in these unusual times.
Ensure that you know what you earn and spend. Keeping a budget is often thought of as painful, but knowing how much you are spending on what is key to understanding where your money goes. Once you have a handle on this and know how much you can save, you can use these funds wisely to invest, for now and the future.
Having a well thought out plan and balancing how much you invest within super and outside super can set you up for life. And when making investment choices, it’s important to not have all your eggs in one basket, but looking at spreading your risk to help smooth out returns.
This year has been a challenging one in terms of job security. For those approaching retirement COVID has forced many to rethink their plans. For those ready to retire and travel the world, their world has been thrown into chaos. Without being able to fulfill their travel dreams, consideration needs to be given to staying on longer to save some extra funds and delay travel plans until the world opens up more. For those wishing to continue working, some may be able to reconsider their work load or hours. To stay refreshed in a job, consider working less hours or taking on a role with less responsibility to reduce stress.
Unfortunately for thousands needing to work more before retirement, many have been stood down from their job or may be facing a redundancy. Many will need to talk to their advisers to see how this will impact on their long term plans and make necessary adjustments to their lifestyle costs. They may also be eligible for new benefits from the Government. Others will refresh their resumes and retrain in order to earn more to support their retirement.
There’s no doubt 2020 has been a challenging year for many on a number of levels. Redundancy or changes in work opportunities has resulted in a reduction in disposable income and insecurity around future earnings. If COVID-19 has taught us anything it’s to always be prepared for the unexpected. Having a savings ‘safety net’ to be able to access during tough times and reduce stress managing day-to-day living expenses is an important take out from 2020 for all Australians.
To start 2021 in the best financial shape possible it’s really important to plan and control your spending. At this time of year many get swept up in the holiday hype and make impulse purchases which can lead to hefty credit card debt in the new year. You can significantly reduce unconscious consumption by planning and researching your purchases.
2020 has certainly shown us that we cannot be complacent when it comes to money, which is why we all need a cash cushion. A cash cushion is anywhere between three to six months of income to cover you in case of an emergency. And wasn’t 2020 exactly that, with people losing their jobs and businesses going broke. Wouldn’t they have had less stress if they had their cash cushion in place? It provides breathing space while you work out your next move.
Recent research from NAB has found 40% of Australians have experienced some form of financial stress or hardship in the past three months. So we definitely need to be forward thinking with our money to put away funds in times of abundance for the future unknown.
For almost all Australians, the most important thing you can do with your finances is get total control of your cash flow – it’s the foundation of your financial life. If you get this part right, everything else gets easier.
Once your pay arrives, have it directed to a range of accounts or ‘buckets’ each with a specific purpose. You should have an account for ‘Lifestyle’, ‘Bills’, ‘Travel’, and ‘Savings’, with either weekly or monthly automated transfers filling the buckets. This automated system will help you create accountability, reduce spending, increase savings, balance lifestyle, pay off bad debts, save for goals and have you feeling like the boss of your finances.
Georgie Savage is an Authorised Representative of Shadforth Pty Ltd ABN 27 127 508 472 AFSL No. 318 613
Disclaimer: The opinions and recommendations provided are not intended to be relied upon as personal advice as they do not take into account your personal circumstances.