MONEY: get spending under control

After COVID-19 turned our world upside down, how should we be changing our position financially? Our expert advises.

More than half a million Australians lost their jobs in April alone, and many have lost other forms of income. Even those who haven’t taken a financial hit know we’re not in the clear yet – the International Monetary Fund says we haven’t seen an upheaval of this scale and severity since the Great Depression. As we brace for more uncertainty, The Weekly turned to the experts for advice on where to save and where to spend going forward.

Shares

Financial advisers are generally measured in their language, but Kate McCallum, financial advisor and author of The Joy of Money, is not mincing words when she says the stock market “literally fell off a cliff” in February.

“During the previous downturn we had a ‘going down the stairs’ approach – this was the elevator falling.”

It’s natural to feel uncomfortable, but Kate stresses it’s important not to act rashly. Shares are a long-term venture, and if you’re considering cashing out, take a moment to reflect on your investment time frame. For most of us, it’s at least 30 years.

“Even if you’re in your 60s and retired, your timeline is still probably close to 30 years because that money still has to last your lifetime,” Kate says.

“If you don’t need to spend that money right now, the best thing is to leave it alone and allow it to eventually recover. It will eventually make its way back up to the values we’ve previously seen.”

Mortgage

Banks are offering a range of options to reduce mortgage stress, so it can be tempting to pause your repayments. While this will bring some short-term comfort, the government advises you should try to continue repayments, even at a reduced rate, as this will help you keep the cost of your mortgage down in the long term.

To help you do this, Kate suggests trying to renegotiate your interest rate. “I’ve got a number of clients who have been surprised that their bank has given them a more attractive rate,” she says.

With interest rates at historic lows, you may be tempted to switch from a variable rate to a fixed interest rate. Kate cautions against this, however, as it can create a constraint that may cost you money to get out of. “We’re hearing that interest rates are likely to be low for some time,” she says.

Outgoings

Now’s the time to negotiate. Speak to your utility providers. If you’re not happy with their offer, shop around. If you have children in school, speak to the administration about fees.

“If you’re a member of a club, ask for some assistance,” Kate says.

Next, check “lazy spending”. Kate and her husband both had Spotify accounts until their son pointed out they could get a family account. Invest in efficiency, such as low flow shower heads, LED lighting and a coffee machine.

“They’re all things that have an up-front cost but they reduce your ongoing variable expenses,” Kate says.

And don’t scrimp on expenses that can save you pain down the track, such as car maintenance.

“One of the big questions we’ve been getting is, should I keep my insurance? It costs me a lot.”

While this may be true, it’s important to protect assets you’ve worked hard to build, Kate says. But you can still save. “You can put the jigsaw together in lots of different ways to manage the premiums,” says Kate. AWW