Hundreds of thousands of job cuts in recent months have resulted in millions of Australians drawing on their superannuation, 429,000 mortgagors taking a ‘mortgage holiday’ and millions more relying on JobSeeker and JobKeeper payments.
Older Australians are particularly vulnerable to financial hardship if they lose their job. Business Council of Australia (BCA) research released in April showed that of those who lost their jobs as a result of COVID-19, 38.9 per cent were aged over 50.
We sought a financial adviser for guidance on how to prepare for the possibility of a job loss.
Helen Baker, licensed financial adviser and spokesperson at Money.com.au says: “Consumers are struggling financially, with many experiencing concern for their job security and the impact this would have on meeting their debt repayments and bill payments.
“Melburnians may be left in a particularly vulnerable state now given the second wave of COVID-19 forcing businesses to shut down again.
“Aussies should get on top of their finances now to prepare for a risk in loss of income. This could include finding ways to pay down debts faster, building an emergency fund, and creating a second income stream.”
Ms Baker offers these suggestions to prepare your finances for a potential job loss:
1. Consolidate your debts. It’s important to pay down your debt as quickly as possible while you still have a steady income. If you can, consolidate your credit card debt and personal loan into your mortgage by refinancing your mortgage. Mortgages normally have the lowest interest rates across all loan types.
2. Negotiate interest rates or move your debts to lower-rate products. While you can, consolidate your credit card debt into your home loan. Another idea is to transfer your card debt balance to a new zero-interest balance transfer credit card. Be aware of the interest-free term, usually six months, after which your interest will return to the full rate. With regards to home loans, for the first time, rates have fallen to below 2 per cent. Now is a good time to refinance and save on interest payments.
3. Create an emergency fund. In a normal economy, I recommend that households save an emergency buffer of three months’ worth of expenses – which covers your debt commitment and regular expenses – in the event of a job loss, as on average it generally takes three months to find a new job. In the COVID-19 environment, in which job listings have fallen significantly, consider saving at least six months’ worth of income. Build up the buffer by limiting your spending to essential items and services, withdrawing superannuation early or finding a second source of income. If you are made redundant, the redundancy package can make a sizeable contribution to this buffer, as can your FY20 tax return.
4. Generate a second income stream. If you aren’t working long hours in your existing job, consider setting up a second income stream. This could be a casual job or self-employed work such as tutoring or Uber driving. Alternatively – and depending on where you live – you could list a spare room, spare garage, parking space, or seldom-used car on share platforms such as Airbnb, DriveMyCar or Parkhound to generate ongoing income. If you have children of working age, discuss as a family how you can work together to increase the household income. Do you have unused items lying around the house? Offload anything you’re no longer using by listing it on platforms such as Gumtree, eBay or Facebook and Marketplace.
5. Consider a reduction in hours over a redundancy package. If your company is starting to discuss a decrease in working hours and redundancies, and offers you a choice, it might be better to have your hours reduced. The former option could see you become eligible for JobKeeper payments and you may have a job to go back to after the ‘stand-down’ period. You could also use the extra time to generate a second income or look for a new role. If you take the redundancy offer, you will be looking for a new job in a tough market while jobless.
6. Consider looking for work while you’re still employed. If you think it’s fairly likely that you’ll lose your job, start applying for new jobs now – particularly in industries that are booming. Employers often look on employed applicants more favourably. Search for roles outside of job portals and consider networking online through LinkedIn and joining online business events and groups to find suitable positions. Landing a new role could take a couple of months in a difficult market, and starting early will reduce the chances of being unemployed between jobs.
7. Get a realistic picture of your spending vs income. Review all your expenses using a budget spreadsheet that allows you to see all your incoming and outgoing expenses. Following this, create a spending plan and separate it into your three budget areas: ‘your absolute basics’, ‘nice to haves’ and ‘living the dream’ – the latter representing your goal once you’re back on your feet. Analyse what the bare minimum is that you can live off, then put the rest away into your savings.
8. Use your annual leave – slowly. Consider using some of your annual leave – or long service leave if applicable – now, as you could be at risk of losing some of your leave if your employer goes into insolvency. Rather than taking a long stretch of leave, consider taking off one day a week or fortnight. If your employer is in the unfortunate position of having to decide who they will stand down temporarily, remaining in the workplace and showing your value might help you retain your role. It will show the company you are flexible and care about their long-term survival.
Have you had to deal with a surprise loss of work? Have you been able to access COVID relief payments? Is there a future in your industry?
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