Bob Cunneen, Senior Economist at MLC Asset Management, discusses the continuation of the May share markets rally in Australia and overseas in anticipation of a reopening of economies, despite COVID-19 infections accelerating in Latin America.
It’s easy to think you’ll never get ahead when you have mounting bills to pay, on a reduced or lost income and limited savings, all because of a pandemic that no one saw coming.
But, it can be done.
Take confidence in knowing that with determination, understanding the support options available to you and having a realistic plan, debt and bills can be managed.
In this article, we’ll address six steps that could help to get you back on track with managing your debt during COVID-19.
1. Understand how much you owe
The first step is to add up all of your debt, to get a clear picture of what you owe.
While laying all your cards out on the table can be extremely confronting, especially if you’ve never done it before, it’s a critical step to see the bigger picture of your financial situation.
2. Keep track of your expenses and income
The next step is to work out how much you can afford to pay to cover your debts.
Having a clear picture about what you earn versus what you spend, can highlight areas where you may be able to pull back spending. Whatever income you’re able to save can then be allocated towards your debt. There are budget planners and phone apps you can use to track your spending. Alternatively, you can simply download your bank statements and keep a record of your receipts. Make sure to include everything from your necessities like rent or mortgage, utilities and transport to what you spend on non-essentials like entertainment.
3. Investigate the support options available to you
Depending on your situation, there are a number of ways you can get financial assistance to deal with the impact of COVID-19.
Financial and banking institutions
Some banks are now allowing customers to defer their mortgage repayments temporarily, in addition to refunding late fees and interest for credit card payments.
It’s important to remember that while this option might help with your short-term cash flow, interest will continue to be charged to your outstanding loan amount – meaning more interest could be payable over the term of the loan. It’s also worth checking with your bank to ensure these offers apply to you.
Government response packages
The Federal Government is supporting individuals and families affected by COVID-19 through a range of measures, including:
Read MLC articles for more detail about these measures and if they apply to you.
4. Develop a plan to manage debt
Now that you’ve identified how much you owe and the financial assistance available to you, the next step is to develop a plan.
Having a debt management plan in place that’s realistic to follow, can help you manage your debt to achieve your goals. But remember to keep a long-term view. You want to ensure that this isn’t a just a temporary fix, otherwise the problems could kick up again.
If you have more than one outstanding debt, consider working out how much you can repay on each, based on the minimum repayment owing.
Alternatively, if you’re able to repay more than the minimum, look at prioritising your debts. You’ll need to think about things such as the type of debt you have -for example, an investment loan, or personal debt – and how much is owing.
For example, if you only have personal debt, you may choose to prioritise repaying debts with the highest interest rate first, given these will be costing you the most to keep them around longer.
At the end of the day, the approach you take is a personal one but it’s important to have a plan and stick to it. And that could mean making other changes.
5.Set aside a savings fund for emergencies
Whilst you can never prepare for events like COVID-19, there are things you can do to ensure when these types of situations arise, you’re able to get through them.
One approach may be to set up a savings fund for emergencies, where you transfer a small amount of your income to a high interest savings account on a weekly, fortnightly, or monthly basis. This will then provide a financial safety net which you can draw on when you really need it.
6.Seek professional support
Managing debt is not something that comes easily to most people, so sometimes speaking to a professional can help put your mind at ease.
A financial adviser will assess your situation and provide you with a manageable repayment plan, which may see you pay your debt off faster.
Bottom line: the most important thing to remember is that you can get ahead with managing your debt during COVID-19, but it will require some changes and reprioritisation. Use the various resources and support available to you and stick to a plan. You can do it!
We’re here to help, contact Dev Sarker at 1300 717 136 today.
While share markets have experienced some of the sharpest falls in history, amid the Coronavirus pandemic, savvy investors have been looking out for opportunities created by recent events.
Travel, tourism, retail and universities are among some of the hardest hit sectors in Australia, due to Coronavirus.1 On the flip side, pharmaceuticals, video conferencing, entertainment streaming and e-commerce marketplaces have been coming out on top.2
So, if you’re looking for investment opportunities for long-term returns, here are five principles that may help you get started. But keep in mind, share markets are unpredictable, even when things seem to be improving they can turn very quickly.
1. Keep a long-term perspective
When making changes to your investment portfolio, it’s important to have a long-term view and plan to have your money invested for a while.
Just as we’ve seen a decline in share markets recently, historically it has recovered. From the 1987 Stock Market Crash to the bursting of the Tech Bubble in 2000, each trigger is different and the time it takes to recover varies too. It could take months or even years.
As such, if you do decide to make changes to your investments during the current volatile markets, it’s important to remember that the future is uncertain. Markets are constantly revaluing company prices with new information so this volatility is likely to remain until there’s certainty around the containment of Coronavirus.
2. Do your research
There’s a lot of ‘noise’ about the current state of the market, so keeping informed and getting an in-depth understanding about where you’re investing, is key.
Here are just a few of the things you could consider when looking at listed companies in the share market.
Does the company have a good track record?
Where does it get its earnings from, domestically or internationally?
How much debt does it have and when is it up for renewal?
How are the company’s earnings going to be affected by Coronavirus?
Does the business have a strong competitive advantage?
Does it have stable revenue and income?
What are its risks in different economic environments?
What price would you be prepared to pay for shares in the company?
What are the risks specific to this company, its industry, and share market more generally?
If you decide to purchase shares in a company, consider monitoring it and any share market announcements, including financial updates or results, issues affecting the industry and any competitors.
You may also want to keep an eye out for any news coverage and interviews about the business to get a feel for their current and long-term viability.
And that’s just the beginning. You need to consider how you’ll reduce your exposure to the risks of investing in that company. Most people manage that risk by investing in many companies and asset classes because their performance is influenced by different factors.
3. Look for the red flags
It’s important to distinguish between companies who have seen their share price fall as a result of market panic, caused by events like Coronavirus, and those that have fallen because they were already unstable and their weaknesses have been revealed by the economic downturn.
When identifying these undervalued shares, consider how much Coronavirus will impact the company now and in the future. It’s also important to look at the company’s balance sheet and business model to see if it can withstand this pandemic, or if it’s prospects are substantially compromised by a further drop in share markets.
Other red flags to look out for include companies with a significant amount of debt or those that may be highly affected by economic conditions.
You may also want to check the company’s position regarding ethical and sustainable investing and whether it aligns to your own values.
4. Consider contributing regularly
One of the ways to take advantage of a market downturn is to contribute a fixed amount to your investment portfolio on a regular basis.
The main benefit of this, as opposed to making a lump sum payment, is that it can help to reduce the impact of market volatility.
If you’re contributing the same amount of money as you were when markets were performing well, then when markets fall, you’re effectively purchasing at lower prices. For long-term investors, this is a great way of taking the guess work out of timing when to invest. Reality is, no one knows the best time to invest.
5. Seek support from professionals
You may not have the time or resources to do the analysis required to identify quality long-term investments so investing with a professional investment manager is an alternative option.
These companies have teams of experienced investment professionals doing the hard work for you and you pay them a fee for it. It’s important to consider if you’re comfortable with their investment approach and how they manage risk versus return.
Obtaining independent advice from a financial adviser, before making any decisions, can help you design a plan to achieve your own financial goals. It may also provide you with a better understanding about the risks and rewards of investing and appropriate investments for you.
Bottom line: share markets are unpredictable so remember keep a long-term perspective. Given the complexities of investment decisions, it’s important to stay informed and seek support from professionals.