Aug 03, 2020  | Tags: COVID-19, personal finance

Our Insights

Despite the doom and gloom, some people are actually spending less and saving more through COVID-19. Initial studies from CBA have shown that as of 1 June 2020, spending was down by 20% per person in Australia compared to pre-pandemic.

Working from home and not being able to socialise have been two of the biggest reasons why people are spending less and saving more, but what else can you do with these extra savings?

CWM financial adviser Stefan Miraglia explains how you can save even more money at such a challenging time, and what you can do to plan for the next unexpected event. Here’s how you can maximise the opportunity to save more money and plan for the future. 

Set up an emergency fund

This can sound boring, but setting up an emergency fund can be the difference between facing financial hardship and just getting by if something financially detrimental happens. By putting away even just a small portion of your income each pay period and only touching it in emergencies, you can have peace of mind knowing that you have something to fall back on if the income stops. As for how much to put away, it is up to you, but aim to save up to three to six months of all living costs (including mortgages or rent) in an emergency cash account. This could take you some time to save, but starting to save a little bit each pay period is better than not starting at all. Another trick is to keep it in a separate bank account that you can’t touch. By keeping it separate, you are less likely to dip into it for any unnecessary purchases. As always, speaking with a financial adviser to get this savings plan set up could also help.

Take care of your debts

Small changes can make a large impact over the long term with regards to debt. Get ahead of the game and use your additional savings to pay off debt now, while we have record low interest rates.

With your home loan, you may consider refinancing to get a better deal. You could also switch to weekly home loan repayments which will pay off your mortgage even faster.

But don’t stop there – setting up an offset account can also help you reduce the term and interest on your home loan. By linking your offset account to your home loan and depositing all your income here, you’ll be able to pay off your home loan ahead of its term and reduce your overall interest costs. 

You might want to take care of ‘bad debt’ first. For example, there is no point paying down a home loan that has a 3% interest rate, while leaving your credit card with a balance on it that attracts a 12% interest rate. You have effectively cost yourself an extra 9% by paying off your home loan quicker instead of your credit card. Look to pay down debt with higher interest rates first, and lower any loan limits so that the balance doesn’t creep up in the future.

Open a high-interest savings account

If you don’t have a home loan offset account, opening a high-interest savings account can help boost your savings. The catch is that interest rates are at record lows, meaning you won’t get a high return on your savings. Similarly to your home loan repayments, earning interest at 1% is not as good as saving interest on a home loan or credit card that is a much higher rate. That said, having funds in a bank account means that the funds are readily available if needed. Spend some time working out what is best for you, and if in doubt, get help from a financial adviser.

Expand your investments

There have been some people who are new to investing that have got into shares during COVID-19. Investing in shares is not for everyone. It is important to look at how much risk you are willing to take, and more importantly when you need to cash out your investment. Shares and managed investments are a long term investment, and generally you wouldn’t want to invest for a period shorter than at least three to five years. If you have other plans for your money in the short term, then investing in shares and managed investments may not be right for you.

Whilst markets have recovered somewhat in recent times, experts are forecasting a lot more volatility ahead. You have to be able to deal with the rises and falls in the short term. Investing for the long term can be beneficial if it is right for your circumstances. You can also look at dollar-cost-averaging where you put only a portion of your investment into markets every few months, to help smooth out the volatility of the market. Speaking with a financial adviser can really help you determine what investment is right for you, and how to introduce yourself to investing.

Make extra contributions to super

This is a great way to build your retirement savings, but once again, it is not right for everyone. In normal times, putting money in your super means that you cannot access it until you meet a condition of release (usually retirement). So if you are young and in your 20s or 30s this means that you can’t access it for a long time.

The type of contribution also matters, and what is best for you will depend on your individual circumstances. Salary sacrifice, concessional contributions, non-concessional contributions, spouse contributions, downsizer contributions – these are all different ways you can get your money into super. What you need to work out is what is the right contribution type for you. Do some research or speak with a financial adviser to make sure you get it right.  

Cut back your expenses and save

This sounds simple, but cutting back expenses really is something that is important. There are numerous ways you can cut back. If you buy coffee five times a week, maybe start with reducing it to three times a week. Take advantage of the cheaper fuel when it is on offer. Recycle some of your clothes that haven’t been given much love in recent times, instead of buying new clothes. Get your hair done every four weeks instead of every three weeks. Review your insurances, utility providers and home loan to get a better deal. Pay yourself first by putting some money into a savings account each pay period (before you go out spending). Prepare a budget to find out where you may be overspending. Saving money doesn’t mean that you can’t enjoy yourself, but by just looking for little opportunities to reduce your expenses, it can make a huge difference to your overall savings.

Start today, and stay focused

There is a saying, ‘The best time to plant an oak tree was 20 years ago. The second best time is now’. Think about it. Not everyone likes to save or invest, and that’s ok. The good thing is that there is time to change, and by starting small today you will take the first steps to reaching your financial goals. It is important to keep focused on your goals without getting distracted by the noise around you. This is where a financial adviser can really help take the emotion out of things and help you stick to your plan to reach your long term goals.  

Get Advice

When opportunities present, make sure you capitalise by getting trusted, expert advice.

You can speak with Stefan or one of our other financial advisers by contacting the team at Calder Wealth Management, sustainable investment specialists. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by Stefan Miraglia for 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.