We are living in very unusual and somewhat frightening time where ‘normal’ as we knew it has been flipped on its head.
Sadly, the harsh reality of this situation is that so many Australian people have had their lives turned upside down through no fault of their own. Whilst, the Government has committed a record amount of stimulus to help ease the pain, it remains difficult to understand your options and above all else extraordinarily challenging to have hope that our lives will once again return to normal.
For our part, we have put together the following ‘Pandemic Survival Guide’ to help highlight a pathway through the pandemic and importantly enable you to position yourself for prosperity once the country gets back on its feet again, and we have no doubt it will.
So here goes, the steps to your Pandemic Survival Guide:
Step 1: Take stock
To start, let’s take stock of your own backyard. We suggest writing your entire financial position down on paper. Call us old school, however seeing everything on one piece of paper can help view things clearly.
Important, that you cover:
Assets, such as your home and cars.
Liabilities ie. Home loan, credit card, car loans etc.
Income – how much do you receive as a net income (after tax) into your bank account per week.
Expenses – how much do you spend each week. This is the hardest number for anyone to quantify, however now is the time to figure it out.
Investments – investment property, shares or any other investment. How are these positioned? What commitment do you need to make to these?
Superannuation – who is it held with? Where is it invested (ie. Shares, property etc)? and how much do you have in there?
This is just the starting place; we want you to be able to clearly see your entire position. For many, it is also a moment to reflect and feel proud of what you have achieved to date.
Step 2: Understand the gap
For those the hardest hit through the pandemic, the issue will be that of cash flow.
Therefore, this is most important step; calculate your cash flow position. Importantly, your outgoings should be separated into essential and non-essential spending ie. What is the bare minimum you need to live? If you are fortunate enough, do you have a surplus of income today?
Understanding this number is critical as you need to clearly be able to see your position, so you can then understand your options.
Step 3: Understand your options
This step is very important for those who find a cash flow shortfall in step 2. The options you have available to bridge the cash flow shortfall (we will discuss options for a cash flow surplus later) are as follows:
Government Stimulus Options
There are two stimulus options for individuals, job seeker and job keeper payments. The job seeker rules have been relaxed to help individuals and families access some income support where there has been a loss of employment. Application for job seeker is made via your myGov portal. Conversely the job keeper payment is available to people who have kept their job, however, have had a reduction in income due to their employer having a decline of 30% or more in revenue. To access this, you must speak to your employer.
For those of you who are self-employed, a large share of the stimulus has been targeted at employers to keep people in jobs. Thus far, there is stimulus package of between $20,000 and $100,000 for employers who have active employees (prior to March) and from the state Government there has been a refund of payroll tax available. In addition, the job keeper payment is tremendous cash flow support to keep you afloat during these times. Finally, there is a grant of up to $10,000 per business from the State Government which will be assessed on a case by case basis according to the impact on your business.
Can we encourage anyone who is running a business to your adviser or Accountant and actively cash flow model your business. This will definitely help.
Speak to the bank
Suspending your mortgage repayments is an option available from lenders and can be negotiated. We are advocates of this however can we recommend that you endeavour to keep your mortgage payments active. Rather than paying them into your mortgage, hold them in a separate bank account and only use the funds if you need to.
At the end of the mortgage repayment suspension period, the bank intends to capitalise your suspended repayments, thus, if you have been able to manage not using the money you have put aside for your suspended payments, you can make a lump sum repayment when the freeze suspension finishes.
Negotiate your rent
If you are having difficulty please negotiate your rent, naturally applicable for businesses renting a premise or those renting a home. We like to think that as humans can work together on this so that we get through this together so would encourage you to work together as you may find yourself on either side of the negotiation. Importantly, if this is still being negotiated, we would recommend only negotiating a change in terms for 3 months as we could find ourselves in a very different space in 3 months’ time.
Access your super
Early access to super is available with a maximum of $20,000 available to be drawn, in two stages, $10,000 now and $10,000 after July 1. We have read many articles encouraging people not to draw on their super or even some super funds not allowing it. For what it is worth, we fully support accessing your super. To explain, accessing super does not mean you have to spend the money. You can build a cash reserve in your bank account, if possible, with your super funds to carry you through the cash flow crisis. Once the storm passes, what’s left can be added back into super. Importantly, this will result in a little more security today whilst ideally not having a longer-term impact by drawing on your super early.
We appreciate there is a lot to digest here so if you are lost and can’t figure it out please seek some professional help.
Step 4: Plan for the future
What we learnt after the Global Financial Crisis in 2008 was that when it concluded many Australian’s reflected on how they felt during the crisis and made active decisions to not feel that way again. We suspect this is another one of those times. Therefore, now is the time to plan and here are a few suggestions that can be done now to position yourself for prosperity:
Build a cash reserve
Focus on building and retaining a cash reserve which is equally important for households and businesses. We have touched on options above to build a cash reserve now however keeping this a key focus long into the future is the number one tip for financial security.
Review your utilities, insurance and expenses
There are so many discounts available, as such, we would recommend you review your utility bills, internet expenses (for example Belong is fully owned by Telstra and significantly cheaper than Telstra for the exact same service), insurance cover and phone contracts.
Review your debt options
Interest rates are now at all time historical lows and really can’t go much lower. Therefore, now is the time to negotiate the best deal you can get.
Importantly, please look at the fine print of your loan. Recently Members Equity, without consent, paid down many of their customers home loans with funds they had saved and parked in their redraw facility. This is disgusting behaviour by Members Equity and something we never even thought as a possibility. Rest assured we have checked the fine print on our mortgages (fortunately not with Members Equity), so we encourage you to do the same. None of us need an unpleasant surprise during this crisis.
A viable alternative to a redraw facility is an offset account, which provides the same benefit as a redraw facility. If you are taking the opportunity to re-negotiate with your lender, this is definitely a concept to raise.
Assess your investment options
If you are fortunate enough to have surplus income or available cash, assessing your options and looking for opportunities now is a very wise choice.
Review your superannuation
Irrespective of your financial position, reviewing your superannuation investment option is so very important and trying to re-position your investments during a crisis can really help over the long-term. Spend some time on this and the possibilities could be significant.
As you could probably tell we could spend hours discussing this topic, however what is clear is those who plan for prosperity through the pandemic will be ok in the long-term. Therefore, our advice to you, start now!
If you are stuck please reach out for help, talk to your friends and family, seek professional help and check out the resources available to you (www.moneysmart.gov.au and www.fpa.com.au). Above all else, stick together and support each other as together we can work through these unusual times.
Take care and elbow tap those nearest to you,
General Advice Warning:
Please note the above constitutes General Advice from Innate Wealth Pty Ltd (Australian Financial Licensee Number 229242). Prior to making any personal decisions in relation to the above please assess your personal situation and if needed seek personal advice from a professional.