posted in: Coronavirus

How to manage your expenses during COVID19


Over the coming months, many people may experience reduced incomes or even be stood down from their jobs. Whilst many people are worried this will send them into significant financial hardship, the good news is that the government stimulus packages and regulatory changes, combined with a big shift in how we spend our money, will protect many of us from the worst case scenario.

Gone are our first world luxuries that include gym routines, regular coffees, dinners out and the odd weekend trip away. Additionally, regular core expenses that would typically apply such as childcare costs have now been paused for families. Whilst the reduction in these costs has resulted in drastic changes to the way we live our lives (even if only temporarily), it gives us a great opportunity to rethink the way we have been spending, possibly even save some money, and work out where our true financial priorities lie during this period.

Our incomes may have decreased, but so have our expenses

The anxiety and fear that comes with the prospect of losing your job or having your hours significantly reduced, has been partially mitigated with the realisation that our levels of spending have also reduced. For many individuals, couples and families, their level of spending will reduce significantly during this isolation period as they look to prioritise the following core expenses:

  • Groceries
  • Medical expenses
  • Essential items required to live i.e. clothing, toiletries, etc
  • Communication and utility bills (these may potentially be paused if needed)
  • Rental or mortgage payments (this may be exempt as explained below)

Relief of mortgage and rent payments

For homeowners unable to meet their necessary financial obligations such as mortgage repayments, we have seen many of our banks step up and allow borrowers to put a pause on their regular mortgage repayments, typically for an initial period of 6 months. When working through the option that is best for you and your family in the long term, it is best to speak with your bank and mortgage broker.

For those renting, the government has recently introduced a moratorium on landlords being able to evict tenants for the next 6 months due to rental arrears, allowing renters to stay in their properties for at least 6 months even if they are unable to pay their rent.

 Income assistance for the unemployed

If you are one of the millions of people who find themselves stood down or are a sole trader whose income has been significantly impacted, you will be able to apply for the JobSeeker payment through Centrelink. A payment of $550 per week is paid fortnightly to those eligible to receive this benefit. This payment has been implemented to try and ensure that those hardest hit can still meet their financial obligations during this period – this includes hundreds of thousands of casual workers and employees in industries most impacted i.e. tourism and hospitality.

Assistance for small businesses to keep staff employed

For those businesses who are struggling to keep staff employed, they are now able to apply to receive a fortnightly payment of $1500 per eligible employee (JobKeeper payment), should their trading have been impacted by more than 30% (or by 50% for large corporations with a turnover in excess of $1 billion annually). This is on top of the recent incentives introduced by the government for businesses which include payroll tax exemptions and PAYG tax refunds for employers who keep their staff employed. With the government pumping in excess of $190 billion (and likely more to come) this should hopefully allow many employers to keep their staff employed during this COVID19 period.

The government is also due to announce a package that will provide rental relief for businesses with a turnover of less than $50m. The details of this package are yet to be confirmed, however this should provide further relief for businesses struggling to keep staff employed.

So, what does all this mean for you?

Let’s take a real-life example of one our clients Sarah and James.

Before isolation began, Sarah was on an annual pre-tax salary of $80,000 and James was on an annual pre-tax salary of $120,000. Their combined incomes after tax equalled $12,213 per month. As a result of the impacts of the COVID19 on their respective employers, Sarah has unfortunately been stood down and James has agreed to a 20% decrease to his salary. Their biggest financial commitment was their mortgage, as they currently pay off an $1,000,000 loan.

See example below.

pre covid19

post covid 19

 

Less income, but also less expenses

The below chart shows that not only are they able to survive in their new reality, but by pausing their mortgage repayments, taking advantage of government benefits and significantly decreasing their discretionary spending –  Sarah and James surprisingly have a greater surplus at the end of the month than they did previously.

Overall, the table shows that Sarah and James have a greater monthly surplus following COVID19, even though their combined incomes have been significantly reduced. Through her employer Sarah can receive the JobKeeper payment of $1,500 per fortnight and by pausing their mortgage repayment they are able to save $4,000 from their normal monthly cash flow. With the lockdown rules in place, they have also seen their discretionary spending fall dramatically from $4,000 per month to $1,000 per month as they can no longer travel, attend their gyms and eat our 2-3 times per week.

Summary

Whilst we are all facing changes and challenges in these uncertain times, it is important to remember that you’re not alone and there is assistance out there. The Montara Wealth team are here to help, so please click here get in contact with us should you wish to discuss your personal situation and develop a financial strategy to see you through this period.

Disclaimer – We recommend you speak with your financial advisor, mortgage broker or bank before pausing your mortgage repayment.

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