How to make the best decisions about your personal finances through the COVID-19 pandemic
Let’s face it. We’re all in uncharted territory here and many of us are having to make decisions about things we didn’t think possible only weeks ago. Perhaps your work hours have been cut back or your business is struggling. Maybe you need to access your superannuation earlier than you’d planned?
While it’s important to be proactive during times like this, it’s even more important to try and take a step back, assess the situation and make informed, considered decisions. You’ll likely reap the rewards when the market picks back up again and social distancing is just a distant memory.
We’ve pulled together this guide, to take you through the most important considerations around personal wealth and finances during this time of uncertainty. Keep in mind the following information is General Advice and is obviously not personalised for your unique scenario, so please get in touch with your advisor before taking any action on the below points.
Managing Your Cashflow
Like managing a business, sound cashflow management is at the heart of a solid financial plan. In times like these, where income is uncertain, utilising the below tips can help protect your financial buffer. Even if you haven’t been adversely impacted, having time at home is a great opportunity to review and reset.
Keep in mind there is support available. If you have been displaced from your role as a result of COVID-19, you may be entitled to government support via the JobSeeker program, without needing to meet the typical criteria such as waiting periods and asset tests.
A solid budget will help too. Now is also a good time to re-cut your family’s expenditure profile and consider your essential and non-essential items. Review and run a line through any direct debits which are not essential or put them on pause for 3-6 months. Try our free cashflow budgeting tool to help with this.
There are some great apps like Moneysoft (Apple iOS or Android) and MyProsperity (Apple iOS or Android), which can help you keep a close handle on cashflow and your finances in general. We can assist you with setting up and using these tools.
Don’t be afraid to request discounts, rate reviews and payment plans on phone bills, utilities and rent. Large corporates will be more receptive to this than chasing bad debts or losing customers...and it doesn’t hurt to ask!
Life Insurance Premiums
Now is not a good time to cancel or materially reduce important insurance cover; however, we know it comes at a cost. So seek advice and look at utilising superannuation for part owning/funding insurance, trimming certain aspects, or requesting a break from premiums. These are all options to avoid cancelling cover.
Early Superannuation Access
Our Head of Superannuation, George Karavias, has prepared a great summary regarding the ability to access $10,000 this financial year and next for those in need.
Mortgage Repayment Relief
The Australian Banks are offering distressed lenders support in the current climate, both for businesses and personal contracts. Personally, consider a principal repayment holiday with your lender (3–6 months) or explore a refinance, given current interest rates and the potential capacity to utilise Interest Only debt and/or access additional capital from your loan.
Investing in Shares, Property and Superannuation
Investing in times like these can be daunting – and so it should be. The GFC provided a once-in-20-year opportunity, and so will the downturn we are experiencing now. The question is how deep, for how long, what to invest in and when to invest! This is why we have a well-credentialled Investment Committee to guide these decisions.
Rather than simply offering reassurance, we are getting great results by actively managing our client portfolios to reduce risk in the short term and ready ourselves for opportunities as they arise. Now is not a time for DIY; however, we can provide some guidance on what to be mindful of, should that be of interest.
Reviewing an existing investment portfolio
The mix of investments you currently have in Australian Shares compared to Global Shares amongst a range of other portfolio characteristics will determine how your portfolio fares in the current climate. The BlueRock Private Wealth team are more than happy to offer their views on the current state of play and to review and provide advice regarding your existing portfolio. While things have already substantially dropped, it’s not too late to health-check your current investment or superannuation strategy. A proactive approach and high level of communication with your current adviser is critical in times like these.
Setting up an Investment Portfolio
Making good decisions during volatile times is complex. This is why we have a strong Investment Committee to help guide BlueRock and our clients, and we recommend staging your initial investment over a period of 3, 6 or 12 months depending on your circumstances and risk tolerance.
Matching the right investment strategy (in terms of style and risk), and the right amount of capital, is where you should start. However, whether you seek advice from BlueRock or elsewhere, you really shouldn’t go it alone.
While it’s very important to check you have the right level of risk in your portfolio and that you are in a great fund, making changes without guidance right now can prove to be a masterstroke or a disaster.
Be mindful not to roll over a superannuation fund until you have checked what insurance you might be losing. Don’t rely on reported performance figures from 31 December 2019. Seek guidance on how your fund has actually performed over the past 3 months as a start. We can let you know if that is good, bad or otherwise. If you can afford to, continuing to make contributions during a downturn generally proves to be a great strategy when things recover.
Depending on your short-term plan to buy or sell, professional guidance in a market like this can result in a 6-figure difference to your bottom line outcome. If economic forecasts continue to worsen, then property prices will weaken, perhaps severely. This creates both risk and opportunity, which we are experienced in navigating and are happy to share our views on.
Protecting Your Wealth
Ensuring you have a solid Plan-B to mitigate risk wherever possible can give you peace of mind when other uncertainties exist. It sounds heavy but no is a great time to make sure these aspects of your life are ticked off.
Life and Income Protection Insurance
Review what you have, put in place what you don’t, and make sure you’re appropriately covered. While Income Protection doesn’t cover you if you lose your job, it does kick in upon sickness or accident. Having proper retail cover (not that which comes default with your super) is critically important. Note that most insurance provided automatically via superannuation has a pandemic exclusion, which hasn’t yet hit the media.
Getting a Will and Powers of Attorney drafted or reviewed is often a rainy day job. We can help you review what you have or put something in place that meets you or your family’s objectives. We have both a low-cost, simple solution and a comprehensive service for those who need it. Having a Will is critical to ensuring your wealth is protected from a range of risks, including tax.
To make it easy during this restrictive period of social distancing, our Estate Planning Service can be delivered by video conference and an electronic data capture process.
We also have some educational material you are welcome to access as a starting point, including a ‘Stage 1’ Succession Planning health check.
Structuring and Asset Protection
If you run a business or have any exposure to professional risk (or family law concerns), it’s important you are structured correctly. Small components of your structure and historical transactions can cause issues and may benefit from an assessment. We are experienced in working closely with our Accounting and Legal team to provide a health check of your current structure both for asset protection and succession.
We also have a BlueRock General Insurance team which can assist with making sure you have the right cover (home, contents, cars, landlord, professional indemnity, public liability, etc) and that you are paying the right premiums.
Finally, as mentioned earlier, this advice is General Advice and does require further validation before you make any drastic changes to your current private wealth strategy. But there are some important considerations that may help you to ask the right people the right questions and ultimately, benefit your future self.
CTA: Feel free to get in touch with the BlueRock Private Wealth team for free consultation and advice during this time
Blue Rock Private Wealth Pty Ltd is a Corporate Authorised Representative of BR Advice Pty Ltd (AFSL 488655).