Time to lay those cards on the table
Recession survival requires a financial diagnosis, and that means being honest with yourself and the bank, writes Susan Edmunds.
‘‘Second cars, plans for overseas holidays – all of these burn cash. Instead, do more with less.’’
When every other day brings a new prediction of economic doom, it’s easy to get carried away by awave of pessimism.
But while you can’t control the spread of Covid-19 or how the economy responds to the measures introduced to contain it, there are steps you can take to bolster your financial position to help get through the downturn.
Chriswalsh, the founder of financial research website Moneyhub, said people should be prepared to change careers to keep money coming in if they were to lose a job. ‘‘We’ve read media reports of pilots working in horticulture and supermarkets, whereas six months ago they arguably had jobs for life. ‘‘Be adaptable and let go of any ego – New Zealand is doingwell compared to other countries and earning a regular income solves so many problems,’’ he said. Economist Tony Alexander saidmodern young people were ‘‘highly adaptable’’, which would make themmore valuable to employers.
‘‘This generation of young people will be far better able to respond to job loss than any previous generationas very few people these days will start out in a job expecting to be with the business for many years.
‘‘They are taught not to think in terms of a career but in terms of continual learning ... These days skills can become obsolete very quickly and young people know they need to keep updating.’’
When you’re looking for a new job, think about what skills you have that can be transferred, rather than getting stuck in the industry you think you ‘‘should’’ be working in.
Financial coach Hannahmcqueen said it was important to diagnose your financial situation correctly.
‘‘Understand how long your cash runway is ... [and] make tactical moves to lengthen your runway.
‘‘When you stabilise, we need to move you forward fast. When you move into a recession you build financial resilience quickly and then you move from defence to offence.’’
Financial adviser Liz Koh said the less debt people had, the easier they would find it to survive a recession. Focus on paying down any loans as fast as you can.
‘‘Have a good look at your budget and upcoming expenses and be proactive about getting help.
‘‘Don’t leave it until you get into difficulty, because when you are under stress and feeling emotional, it is much harder to find the energy to make the necessary changes.’’
If you’re concerned about keeping up with loan repayments, get in
touch with the lender early.
Chriswalsh Moneyhub founder
Banks are reporting thousands of applications for home loan ‘‘holidays’’. While interestwill still accrue during the period you have your loan on hold, it gives you some breathing room and takes pressure off during a stressful period.
Some landlords have also been willing to negotiate rent relief.
‘‘It’s very important to talk to people you owe money to if you get into difficulty – whether that is the bank, your landlord, your power or phone company or Inland Revenue,’’ Koh said.
‘‘It is in their interests to help you find a way to meet your obligations over a period of time without going through messy legal procedures or debt collectors. Find out what financial assistance is available to you from Work and Income if you have lost your job.’’
The experience of being in lockdown has shown many people how much money they can save if they have to. Apart from extra spending on flour and toilet paper, our outgoings have typically dropped. Consumer spendingwas down 72 per cent on the first day of the level four shutdown comparedwith pre-lockdown levels, according to Paymark.
Alexander said people could continue on that level of spending for a few months to build up an emergency savings account. Walsh said cutting back on luxuries would be good for many households. ‘‘Second cars, plans for overseas holidays – all of these burn cash. Instead, do more with less – takeaways for kids’ birthday parties, support local businesses for experiences and treats, and keep money within New Zealand until we recover. We are creating an extreme version of paying it forward.’’
He said people could also consider replacing insurances.
‘‘Moneyhub constantly compares insurance premiums and there are very competitive deals out there, even from the big brands. But you have to switch to take advantage. Car, home, contents and pet are all switchable with no downside for most people.’’
Changing personal insurance policies is different because you can lose cover for pre-existing conditions. But many insurers are offering premium holidays or the option to put a policy on hold.
Although markets have recovered a chunk of their March losses, many people still have Kiwisaver balances that are lower than they were at the start of the year.
As long as you don’t need the funds immediately, you’re best to stop checking your balance and just assume it will rebound eventually.
Even if you’ve discovered you’re in the wrong type of fund for your risk appetite, once markets start to move it’s almost too late to do anything about that because any move will lock in your losses.
Koh said people needed to remember that recessions were a normal part of the economic cycle.
‘‘This is not the first recession, nor will it be the last. It is likely, however, that this will be the deepest recession we have seen since the Great Depression. While the economy as a whole will recover in time, there will be winners and losers. Learn the lessons from this recession. When the next boom time comes, use this as an opportunity to build up your financial resources, because a boom is always followed by a recession.’’
Alexander said New Zealanders were experiencing the biggest economic shock in decades, ‘‘which interestingly means older people can no longer say [younger people] never had it rough’’.