Improve financial resilience during COVID-19

The COVID-19 outbreak has turned the world’s economies on their head. Thinking about your finances can seem daunting when many people have lost jobs and stock markets have been volatile. But there are steps and strategies that you can take to improve your financial well-being.

When things are going well, it’s easy to just let things keep going as they have been, but in difficult times, such as the COVID-19 pandemic, many entrenched habits need to change. Now might be a good time to try and improve your financial resilience.

1. Control your finances

A budget is simply a spending plan that considers both current and future income and expenses. Having a budget can keep your spending in check and make sure you are saving for the future. It also gives you oversight of any major expenses coming - alleviating any stress when a big bill comes in. You don’t need to think about your budget as restrictive – it’s not a money diet. It’s a way for you to figure out your long-term goals and work towards them.

A lot of people have become used to spending money they don't have and often don't always realise they're overspending until they're drowning in debt. However, if you create and stick to a budget, you won’t find yourself in this precarious position. You'll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Building a budget helps you get perspective on your spending habits. You may notice you're spending money on things you don't need – and don’t even enjoy.

Importantly, your budget should always include an emergency fund that consists of at least three to six months’ worth of living expenses. This extra money will ensure you don't fall into excess debt in the event of a life crisis – or an economic/health crisis such a pandemic. Having a plan can help relieve a lot of stress. No one knows how long a pandemic or crisis will last, so it’s important to have a contingency plan.

Track your spending with Moneysmart's Budget Planner 

2. Insurance

The ongoing global health crisis has compelled us to reset our lives and drawn our attention to finances and savings. Regardless of your income, no one can predict what the future holds.

Now is a good time to look at your insurance in super arrangements and check they are fit-for-purpose. Consider the value of income protection insurance, which can replace some or all of your income if you’re unable to work due to illness or injury.

Income protection won’t protect you if you become unemployed though (that’s what your emergency fund is for) but it can protect you in plenty of life’s other adverse situations. Life, total and permanent disability and trauma insurance also have a role to play to ensure you have a financial safety net.

Think ahead. Act now for the future.

3. Manage your debt

Owing money or falling behind on repayments can be stressful. The good news is there are steps you can take to relieve the financial pressure.

a) Know what you owe

Make a list of all your debts showing how much each debt is and what the monthly/weekly minimum repayment is.

Include credit cards, loan repayments, unpaid bills, fines and any other money you owe. Then add up all the debts to see how much you owe in total. It may be confronting but remind yourself that you're taking charge of your money. And that's a good thing.

b) Work out what you can afford to pay back

The next step is to work out how much you can afford to pay towards your debts. Compare all the money you have coming in and all the money you have going out. The easiest way to do this is to do a budget (see above).

List all the money you have coming in each month (income), such as salary or investment income. Then list all the money going out (debts and expenses), for things like food, rent or mortgage, credit cards, electricity, phone and transport. Once you’ve done this, you’ll be able to compare money in and money out.

If your income has dropped due to COVID-19, you may be eligible for extra Government financial assistance. 

If you’ve more money going out than coming in — it's time to make some choices. Think about your 'needs' (can't do without) and 'wants' (could do without, at least for a while). Identify some expenses that you can cut or reduce. Be realistic — don't make it impossible to stick to.

c) Prioritise your debts

You should work out which debts are your priority debts and try to pay them first if you can. Priority debts include:

- rent or mortgage
- council rates and body corporate fees
- electricity, gas and water
- car repayments — if you need your car for work or essential travel

Paying off your priority bills first can help alleviate stress as these larger items are harder to avoid paying or deferring.

If you can't keep on top of these, you can request financial hardship variations from the organisations you owe money to. Financial hardship means having difficulty making loan or debt repayments. This could be because of illness, unemployment or changed financial circumstances. You could also make financial hardship requests for lower priority debts like phone bills and credit cards. The idea of claiming financial hardship is that it allows you to work with the lender/organisation to find ways to manage the problem debt (i.e. via a payment plan).

d) Get help if you need it

If you're like a lot of people, you may not be receiving expert financial advice or have got around to crafting and following a detailed budget. If you would like to speak with an MLC adviser to help build your financial plan you can find one near you. They can help you understand your options and provide some assistance in understanding your financial position – and moving towards a more secure future.

Important information and disclaimer

This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 31 July 2020 and may be subject to change.  This information may constitute general advice. The information in this article is factual in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations.  Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.  Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.