Sep 10, 2021

Our insights

Around the world, COVID-19 has pushed many countries into or towards recession. And this is certainly the case for Australia, despite being in a better position than many countries.

While the impacts are still being realised, it is clear that the global pandemic has slowed our economic growth, squeezed business profits, reduced jobs and placed significant financial pressure on every day people.

Whilst some Australians responded quickly and were diligent about protecting their financial futures at the start of the pandemic, in the midst of the initial shock and fear, there was a view from some that life would soon go back to normal. But we’ve quickly learned that the challenges are ongoing, and we need to constantly adapt. And this should be reflected in our approach to our finances and wealth.

As they say "failing to prepare is preparing to fail" and an experienced financial adviser can help you navigate through the uncertainty.

Here’s just a few of our initial tips to safeguard your financial world for any and all circumstances.

Take control of your debt

Debt can come in many forms including but not limited to mortgages, credit card debt, personal loans, education debts and car loans. You may have done some work on your debt at the start of the pandemic, but it’s again time to take stock of all debts as well as the total value.

Next, prioritise the highest interest debt and increase your efforts to pay this off quickly. Put a plan in place and keep yourself accountable.

A debt consolidation strategy can be a helpful money-saving approach and could include combining multiple loans into a single loan with lower fees and rates. 

Generally, a mortgage is considered the least urgent as it has an extended payment period. Nevertheless, if you have the financial means, pay it off as soon as you can. This is especially important right now, with interest rates so low.

Working towards being debt-free will put you in a position of strength through any volatile economic situation, and give you far greater control over your circumstances.

Spare no effort to save

Through the pandemic your savings may have taken a hit. But one of the smartest things you can do to prepare for anything is have a safety net. Building a sufficient savings account can provide you and your family with an extra layer of security should times get tough. 

Build up an emergency fund that can cover three to six months of living expenses and aim to have this sum in cash, as it is easier to access when you need it quickly. Calculate this amount by multiplying your monthly transactions by the number of months (remember to exclude the 'nice-to-haves’).

Another important saving strategy is reducing your monthly expenses. Through the pandemic, most people have increased spending on things like subscriptions and other forms of entertainment - let’s be honest, you don’t need it all! Review your insurances and utility providers and shop around to find a better deal.

An experienced financial adviser may be able to help you with a savings plan to reach your goals.

Set your budget

Budgeting is a healthy financial habit that helps you reduce your spending by tracking your income and expenses. Creating a budget helps you truly understand your financial situation, builds savings, and gives you the power to manage financial challenges.

Many people got serious about budgeting when the pandemic hit. But it can be one of those things that can quickly slip. A budget is only worth your while if you stick to it. Don’t be too harsh on yourself if you slip up, the trick is to get back on track as soon as you can.

Diversify

Diversity is a great way to offset risk. There are many ways you can look to diversify.

Firstly, can you diversify income streams? While you may have a fulltime job, are there opportunities to bring in money through other channels such as a side-hustle (like an online business, handy work or utilising other skills that people could be willing to pay you for on the side), shares and investments or other alternatives?

If you’re a business owner, explore alternative products, services and marketing channels, so you’re not just reliant on one stream of clients from one place. Change up your model and ensure your business is ready to adapt.

From an investment perspective, a diversified strategy is better poised to handle market swings that come with a recession or downturn.

Look at your investments with a long-term view, especially if you are younger. Keep the emotions in check and know that you have time to recover and overcome the ebbs and flows of the market.

However, if you have been made redundant or nearing retirement age, you may consider selling some of your shares. Before doing so, talk to a financial adviser to weigh up the impact and understand where it fits with your broader strategy.

Recessions also create windows of opportunity for investments as they often cause some share values to rise, and we have seen this demonstrated throughout the pandemic where many markets and sectors have been going through the roof. A diversified portfolio will therefore see those growing investments offset anything that may be on a downward slide.

Don't forget your super

Your super is crucial to your retirement plans. If you're earlier in your career, don’t panic if your superannuation takes a bit of a hit. Time is on your side, and any losses will likely be balanced out as you ride out the rhythmic expansions and compressions of the economy while it recovers.

If you're nearing your retirement age you may have less time, but this doesn't mean you should make any panicked decisions regarding your super. If it's in a balanced fund, check if it has been moved away from risky assets, which are more easily impacted by events like a recession.

A financial adviser can help you implement a super strategy that’s specific for your needs and stage of life.

Ask for help 

Dealing with financial and wealth risks isn’t a one time thing. We’ve all learned that the best way to approach your finances is on an ongoing basis to continue to thrive in all situations.

Talk to a professional adviser to get the right advice, and plan, for your needs.

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

Written by Stefan Miraglia 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.