Apr 07, 2020  | Tags: coronavirus, covid-19, budgeting, Budget, personal finance

Our Insights

The Coronavirus crisis has rapidly impacted just about everyone in one way or another, just about all over the world.

Thousands of Australians have been thrown into stressful financial situations following employment cuts and losses, some overnight.

But this isn’t the first financial crisis we’ve faced. Over the last century, our grandparents and great-grandparents were faced with similar struggles during war times and the Great Depression. More recently, there was the impact of the Global Financial Crisis in 2008 and the terrorism that changed the world on September 11, 2001.

While COVID-19 is unique in many ways, your financial response shouldn’t be much different to any other crisis or major challenge - re-evaluating your budget is a critical first step in ensuring you survive tough times and thrive in the long-term, whether you are a business owner or employee.

Cutting your budget may be hard, but it’s far from impossible. Here are just some of our tips for updating and leaning up your budget, so you can gain control and be in the best financial position even when times are tough.

Review your current budget

Before you make any budget cuts, you need to review your current budget and income. Knowing where you stand is key to making appropriate and effective adjustments that will bring benefits in both the short and long-term.

Your financial position before COVID-19 will also influence the size of your budget cuts. In particular, if you were already spending beyond your budget before the crisis, you will be required to make even bigger changes to your budget and your life.

Manage your cash flow

Managing your cash flow and cutting down your expenses will make or break your financial situation. Prioritise essential expenses like food, utilities, housing and insurance before you spend any money on additional expenses like dining out, shopping, travel and recreational activities.

Recurring expenses like gym memberships, extracurricular and even newspaper subscriptions can also throw off your budget. Consider how necessary these are and cut accordingly.

The restrictions arising from COVID-19 allow you to easily avoid many of these activities, which helps. However, it also places you at risk of spending money on other services such as streaming, gaming and electronics, and food delivery, so be weary of how you spend in these areas.

Business owners will also need to thoroughly assess their spending to maximise their savings. Consider how you can cut costs on recurring monthly, quarterly and annual expenses. Review your utilities, rent, payroll, subscriptions, services, equipment and inventory to see if there are any costs you can cut or gain from selling.

After considering all of these factors, you need to decide the best way for you to spend strategically (and strictly) and ensure as much of your money coming in is being saved.

Refinancing and debt consolidation

Many homeowners don’t realise that simply refinancing and getting a better deal on your home loan could put hundreds of dollars back in your pocket each month.

Consolidating other debts, including car loans, personal loans and credit cards is another way to potentially save a lot of money quickly.

Whatever you do, avoid taking on any extra debt at this time.

It is an important time to manage your debt well. Not only through consolidation, but ensuring you still hit repayment dates on time, to avoid additional fees or impacting your credit rating.

Know your entitlements and support options

The Australian Government has announced several stimulus packages and relief for businesses and employees. Make sure you research what entitlements you are eligible for to maximise your in-flow of money and replace at least some of your lost income. Apply for these entitlements as soon as possible to avoid falling behind and missing out on any payments.

There are also several support options available from Australian banks, insurers, internet and mobile providers and energy providers. Most of the major banks are offering mortgage repayment ‘holidays’, allowing those who are struggling to defer their repayments, with interest capitalised, for up to six months. Beware though, this could cost you more in the long run and impact your ability to get finance down the track. It is recommended to get advice from an expert about this.  

Keep an emergency buffer

Your budget should already include a portion of your income which goes towards your emergency fund. Now is a good time to dip in to those funds if you need. This emergency buffer will be important in keeping you afloat during these difficult times.

However, make sure you manage your emergency fund wisely – you will need to save this safety net for the long-term, through the coronavirus crisis and for any other future events.

If you can, you should still try and dedicate a portion of your savings and other earnings to your emergency fund, you’re now learning how important it is to have that buffer!

Get Advice

When you're reviewing your budget, it is important to get expert advice to not only do it the right way, but also ensure you're staying on track towards your wealth goals.

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Kerryn Shaw at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own  circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.