We are constantly getting swamped by the media regarding cases, closures and all the ups and downs of markets both domestically and around the world. COVID has caused great uncertainty to everyone’s financial situation in one or more ways.
I thought this would be a good time to reflect on what we have learnt financially to date
1. There has been billions wiped off our future retirement savings
The combination of the Government’s early release scheme and market downturns has seen our retirement pool reduce dramatically. Most of us will be forced to work longer than anticipated to claw this back so the traditional retirement ages of 55-65 may be no more.
We all need to be more conscious of our Supers to ensure they are invested in line with our risk profiles and circumstances. We have been strong advocates of not letting your funds sit in “default” funds without proper consideration as to how funds are invested. We encourage review of Super on a consistent basis
For those considering retirement in the short term, if funds have not been invested in a more conservative environment you may find an erosion requiring rethinking of that date to stop
3. Ongoing Fees charged should have more focus
With reductions in Asset values we need to look carefully at the fees the Super Funds are charging. This could also affect long term projections. There are many funds with excellent fee structures which are lower than Industry Funds out there
4. Industry Funds have been found out
Members of Industry funds have seen a great fall in the value of their super balances due to significant allocations of their overall assets into liquid unlisted assets like direct property, infrastructure, private equity and alternatives,
These have been shown to have restricted liquidity because most have handcuffs, pre-emptive rights and a long and convoluted sale process.
Industry funds have therefore had to sell down more of their listed domestic and international share portfolios to pay their members for early withdrawal of super thus causing inflated losses and poor cash payment timings.
5. We are not invincible
Living through a pandemic has shown us we are all at some level of Risk. Now is the perfect time to ensure your Insurances are in place and appropriate for your circumstances
6. Cash is King
Cash is important. If you are needing to pay your expenses and your job or income has been reduced, having savings accessible for cash is critical. You may have your savings in an offset or a re-draw on your mortgage or sitting in a higher earning account, but you should have access to around six months of emergency money.
7. Manage your debt
During good times, it’s easy to fund debt with low interest rates as a great enabler to build wealth and get what you want. However, owing money or falling behind repayments can be stressful. Relying too much on credit cards will put you in a vulnerable position too.
The banks’ response to provide assistance to borrowers has been impressive, however, we should not wait until we are impacted by a crisis to pay attention to our debts. By continually reviewing our loans, terms and interest rates, you can achieve great long-term savings.
Simply contacting your bank and querying your current interest rate or fees on a loan can achieve great results. This does not mean you have to necessarily move lenders.
Our Mortgage team has had great success in assisting our clients achieve this
8. Have a financial plan
Managing your money requires commitment, determination and discipline.
You need a plan to constantly improve your financial position, so that you are prepped to navigate through any challenges ahead. As the saying goes, failing to plan is planning to fail!
You need to set a financial goal now and work towards it. It’s not a thought you save for later. Write down your goals and back them up with a plan. Having it written down means you can reference it, measure it and manage it to keep track of your progress.
Contingency planning is an essential part of financial planning. It’s the proactive strategy for risk management. You’re preparing yourself ahead of time for potential negative events. To so this, ask yourself questions like…
What happens if I lose 25% of my income?
What do I do if my expenses go up?
What if I get seriously sick?”
…and come up with responsive actions respectively. Contingency plans put you in an empowered place because they help push away your fear and anxiety of not knowing what to do when a crisis hit.
Also, evaluate how complicated your financial situation is to determine if you need professional advice. Who are you responsible for supporting? What are your debt levels? Do you own a business (or many businesses)? Do you have investments?
All of these things add complexity and risk to your financial position, so it’s wise to seek assistance from a financial planner who can help determine and assess your financial goals, considering your individual circumstances and aspirations, and plan for you to achieve them.