posted in: Coronavirus
How Will Self-Isolation Affect My Financial Situation?
With the coronavirus pandemic escalating quickly, many of us in the near future will be required to self-isolate. With many states now in lockdown, many of us are in self-imposed isolation already. It’s little wonder many of us worried about how this may impact our financial situation.
For those able to work from home this is a great option. But what about those of us who aren’t able to work from home? How will this affect our income? And how will this be compounded if you choose to keep your children home from school or childcare centres (or they’re closed) and you need to take time off from work to take care of children?
This is a unique situation that is most likely going to affect everyone to certain degrees. Whether you are in self-isolation with children or working in industries like hospitality or travel that have been seriously affected, we all need to stick together.
How to prepare
For many of us, taking time off to self-isolate or to take care of children will disrupt our incomes. While we may get by working from home or be on paid leave entitlements, there may be a period where we need to take unpaid leave.
While this may be out of our control, what we can control is how we prepare. Taking steps to prepare for a loss in income is smart, even if that situation never materialises. We also know that the likelihood is that the more challenging the situation becomes, the more assistance will be available from the government.
Talk to your employer about your options should you need to take time off. Have a look at potential scenarios to determine what the impacts to your income may be so you can prepare. You may want to develop a financial forecast with your financial planner which considers the various scenarios.
Now is a good time to review your income protection policy or consider getting income protection insurance. This will cover you if you get coronavirus and can’t work, but keep in mind it won’t cover you if you’re made redundant.
Hacks to free up cash flow
Freeing up your cash flow is a common sense way to reduce your financial burden month to month and offset any disruptions to your income. Some options to free up cash flow include:
- Drop non-essential regular expenses such as regular subscriptions such as magazines
- Reduce the number of days your children attend daycare or take them out completely to reduce your costs – plus you’re less likely to get sick!
- Cease any voluntary super contributions. You can resume these at a later date when you no longer require the cash flow to meet your day to day expenses
- Request a mortgage repayment holiday from your bank or lender. Talk to your mortgage broker to organise
- Move personal insurances such as income protection, life insurance and TPD insurance into your superannuation. The costs will be paid from your superannuation balance, freeing up cash flow. Talk to your financial advisor to see if this is the right option for you and to discuss the impacts
- Negotiate with your providers to pay annual bills in more frequent installments. That way you won’t be hit with a big bill at once, preserving your cash flow in the short-term
- If you are self-employed you may be able to set up a payment plan with the ATO to pay tax in installments or arrange for a payment holiday during this period
- If you are worried you won’t be able to afford your rent, you should talk to your landlord or the property manager about your options
- If you have equity in a property, speak to your bank about accessing cash from equity in your property to help for a rainy day.
If possible, establish an emergency savings fund with any available cash that is dedicated to cover you in periods when your income is disrupted. Don’t touch it unless necessary.
This is also a good time to set up or review your budget. A budget will give you a clearer idea of your spending and where there may be other costs you can drop or reduce, at least in the short-term.
What about the Federal Government’s stimulus packages?
The Federal Government has now committed over $190 billion in stimulus packages to help Australians deal with the financial fallout of coronavirus. While the stimulus packages largely support small businesses to stay afloat, there are also measures to help individuals.
If you access the age pension, Family Tax Benefit, Youth Allowance, JobSeeker Payment (previously known as Newstart), Austudy, Disability Support, or parenting and carer payments, you will receive a $750 one-off cash payment. This will be paid into your account from 31 March. It has recently been announced that some welfare recipients will also receive another one-off $750 payment on 13 July.
The JobSeeker Payment (previously known as Newstart) has also been temporarily doubled, providing people with an additional $550 a fortnight. While the payment will be subject to income tests, the Government will waive asset tests and waiting periods to access the payment.
People under financial stress will be able to access up to $10,000 from their superannuation this and next financial year. The money won’t be taxed and won’t be treated as income when assessing Centrelink or veteran’s payments.
The states are also introducing their own stimulus packages, so do your research to see if you are eligible for any benefits.
As the lockdown continues to deepen, you can expect that further stimulus packages will be announced, similar to other countries around the world.
Amid the uncertainty, the best way to protect your financial situation is to be prepared, do your research and talk to your financial advisor. Having an action plan in place is a great start.
N.B: At the time of writing, this advice was given on current circumstances. This may change as circumstances or government advice changes
About David Hancock
David Hancock is a director and Senior Financial Planner at Montara Wealth. His role is to oversee the running of the business and ensure the delivery of exceptional service and strategic based advice to clients. David is well known for developing strong long-term relationships with clients and is passionate about helping them identify and implement life changing financial strategies. www.montarawealth.com.au