Are you like me and suffering from serious information overload at the moment? It seems like everyone you speak to has an opinion about how quickly things will return to ‘normal’, what the economic impact is going to be long-term, and whether you should invest in a lifetime’s supply of toilet paper.
Let’s face it – none of us have been through anything like this before. So no-one is going to have all the answers. But what you can do is turn to people who are experts in their particular field to get the information you need to make an informed decision. I can’t tell you when we’ll all be back in the office and the shops will all be open again, but I can provide advice and support in relation to your finances.
Here are a few basic principles to observe while we weather the corona-crisis…
Don’t dump your cover
When the budget gets tighter, it’s natural to look for ways to save money and reduce your monthly expenses. Which means you might be looking closely at your insurance renewal and wondering if you really need the cover.
I strongly urge you not to dump your life insurance policy. For starters, once you cancel your cover, you cannot just pick it up where you left off. If you decide to cancel cover and reapply down the track, you’ll very likely have to pay more for the same level of cover (because of your age) and you may even attract a loading or exclusion that you didn’t have before.
There are many more options to investigate before you cancel – like reducing your cover amount to make it more affordable, or restructuring your mix of covers so that it better suits your current needs. Some insurers are even offering a pause on premiums for people currently experiencing financial hardship.
But the main reason not to cancel your cover is the same as the reason you took it out in the first place: how will you and/or your loved ones manage the financial impact of serious illness and injury? If the burden of losing your income for a period of time was a concern before the current crisis, chances are it’s even more of a worry now. Keep your cover and you’ll have the peace of mind of one less thing to worry about.
Do think twice about accessing your super
One of the initiatives the government has put in place to help people impacted by coronavirus is to allow the withdrawal of up to $20,000 over two years from superannuation. At first glance, this might seem like a quick and easy way to keep the bills under control while we wait for normality to return, but there are a lot of factors you should consider before you put in your withdrawal application.
First off, it’s important to remember that superannuation is a long-term investment for your future. Withdrawing money now will have an impact on the amount you have available when you retire – you may have to work longer, reduce your lifestyle aspirations or even rely on the pension. Most people are already concerned about having enough money to last them through retirement, so you need to really weigh up the short-term gain versus long-term pain.
Secondly, your superannuation account likely includes valuable insurance cover, for which the premiums are deducted from your super balance. If you withdraw your super now, you may have an insufficient balance to maintain these insurance premiums and lose your cover.
Don’t stick with your mortgage
Interest rates are at their lowest, ever! If you haven’t reviewed your rate in the past year, you could well be paying more than you need to. Now is a really good time to meet with a broker or call around the banks to find out what options are available to you.
Some things to consider when you’re refinancing are:
- Whether you can get a better deal without switching lenders
- If you can reduce the term of your loan
- What loan features are important to you (such as an offset account)
If you would like to review your mortgage, I’d be happy to refer you to our partners at HM Finance.
Do ask for help
If you are one of the three-quarters of Aussies who have seen your household income impacted by the coronavirus crisis there is help available. This can vary from pausing your debt repayments through to applying for one of the various government payments available.
The best thing to do if you or a family member are experiencing financial difficulties is to reach out to a financial adviser for help. Advisers are licensed professionals who will look at your entire financial position and give you direction as to the right solution for your individual needs.
If this blog has raised any issues or questions for you, please don’t hesitate to give me a call.