Australia in recession – how to secure your finances

Australia in recession – how to secure your finances

Australia is now in a recession, confirmed Treasurer Josh Frydenberg today, a result of the impacts of the COVID-19 pandemic and the catastrophic summer bushfire season.

The announcement comes on the back of the latest Australian Bureau of Statistics (ABS) data that shows the economy shrunk by 0.3 per cent in the March Quarter, the second quarter in a row.

  • Recessions are defined as a period of economic decline, typically identified by a decrease in GDP in two successive quarters.

This is the first recession Australia has faced since the 1991 recession, meaning there is a generation of Australians who have never lived through one.

If you’re not sure what to expect, or even what you can do today to future-proof your finances, don’t panic! There are actions you can take today that may help put you in a better position for the future.

1. Grow an emergency savings fund

The biggest personal impact of a recession is generally a loss of income/employment. This is why it’s more important than ever to have an emergency savings fund.

Experts recommend having at least three months’ rent in savings just in case you lose your job. However, saving up this amount of money takes some time and effort. This is why you may want to consider a deposit account with a high interest rate that does some of the work for you.

As the Reserve Bank of Australia cash rate sits at a historic low of 0.25 per cent, savings accounts are also at rock bottom lows. This means it’s more important than ever before to do your research around high-rate accounts to store your money.

Keep an eye out for any ongoing fees, such as admin fees, that can reduce your savings.

Here is a list of the highest conditional rate savings accounts on the RateCity database:

2. Pay back your debt

The last think you want during a recession is to grow any existing debt. One of the most common sources of debt for everyday Aussies is credit card debt.

If you’re the type of person who always accrues interest on their credit card and struggles to pay their balance off each statement period, it may be worth considering switching to a balance transfer credit card to get on top of this now.

Balance transfer credit cards allow you to transfer your existing balance to the new card. It offers periods of 0% interest, so you’re given some much needed breathing room to pay off your debt.

  • Keep in mind that any additional purchases you make will immediately accrue interest, and balance transfer purchase rates are notoriously high.

Once you’ve paid off your debt, you may want to then consider switching to a low rate, low fee credit card option. At least until you can develop better money habits.

Here are some of the lowest rate credit cards on the RateCity database, that also charge no annual fees:

3. Frugality is your friend

If you’ve never thought about your budget much before, now is the time to get familiar with your spending.

Get a copy of your bank statement and go through it with a fine-tooth comb. Categorise your spending into a few key groups: essentials (rent, utilities), needs (groceries), wants (nights out with friends) and savings. Then look at what percentage of your income goes towards each of these categories.

How you choose to divide up your budget is up to you. There a range of helpful programs available on platforms like ASIC’s MoneySmart or even Pinterest.

But common sense should tell you that if a huge chunk is going towards your wants, you may need to reduce this significantly and put it towards your savings if you want to come out unscathed during the recession.

4. Diversify your income

One of the most common pieces of advice you’ll hear for the next few months is to diversify your income. This is another way of saying consider getting another casual or part time job to bolster your current income and to support yourself and household in the event you lose your main job.

Whether you begin doing freelance work in your chosen industry, do a big spring clean and sell some of your possessions on Gumtree, or consider looking at investment options, diversifying your income is one way you can help to stay on top of your bills and debts in the event that you lose your job.

5. Reduce rates if you can

It’s not just your income and spending that you need to review, but all your finances. You’d be surprised what savings are out there if you’re willing to do a little research.

With the cash rate at an historic low, this means mortgage rates have never been more affordable.

If you’ve been paying off your home loan for a number of years and have built up a little equity, you may be in a better financial position to negotiate your way onto a more affordable rate. Lenders typically reserve the most competitive rates for newer customers to help get them onto their books, so you have nothing to lose by asking for them to match these rates.

It’s not just your home loan that could be costing you too much. Anything from your energy bill to your phone bill could be on the higher end of the market if you’ve been sticking to the same provider for years.

Reserve some time to do a little comparison research and see if there are more affordable options available. You may see your bills plummet, freeing up more of your income towards the things that matter.

 

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Learn more about bank accounts

Do you need a bank account to get a credit card?

To get a credit card, you need to show proof of income, which will almost certainly require you to have a bank account.

How do you transfer money from PayPal to a bank account?

Transferring money from PayPal to an Australian bank account is simple. Just follow these three steps:

  • Go to your Wallet
  • Click ‘Transfer Money’
  • Follow the instructions

The money will take three to seven business days to reach your bank account.

Once you’ve made the transfer request, it can’t be withdrawn.

How do you set up a bank account online?

Once you’ve compared bank accounts and found the right one, the process of opening a bank account online is quite simple and can be done in around 10 minutes.

To set up a bank account online, you’ll need to prove your identity and provide an approved form of ID as well as your tax file number (TFN).

If you’re a new customer of the bank, you’ll need to verify your identity and potentially upload documents before you can complete your online application.

Once your ID has been verified and you’ve set up your bank account online, you should receive your bank cards in the mail along with your PIN and any other account details.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can a debt collector garnish my bank account?

A debt collector can garnish your bank account, but only with a court order. This drastic action is usually taken only if you’ve ignored several notices asking you to pay the debt.

If this happens, there is nothing you can do to stop it other than immediately pay back your what you owe in full or make arrangements to pay it off in installments.

Once a garnishee order is issued, your bank will put a freeze on your account as it processes the order. This usually takes two to three days and you won’t be able to access any of your money during this time.

If you have Centrelink payments, they may be protected, depending on what the court order says.

Are bank accounts frozen when someone dies?

Yes, Australian bank accounts are frozen when someone dies. If you want to close the account of somebody who has died, you might have to provide proof of death and a copy of the will. You might also have to prove your relationship to the deceased person.

If you have a joint bank account with somebody who has died, you will generally be entitled to all the money in the account. Again, you might have to provide proof of death if you want to change the bank account from a joint account to a one-person account.

How can I close a Commonwealth Bank account?

You can close your Commonwealth Bank account at any branch, provided you have appropriate identification. You can also close your account over the phone, by calling 132 221, 24 hours a day.

How do I open a bank account for a child?

There are few better ways for a child to learn about money management than through savings. And there’s a plethora of bank accounts designed specifically for young people and children.

A bank account for a child can be opened online, over the phone or in a branch in a few easy steps. The minimum age a child can open a bank account for themselves usually ranges between 12 and 14.

If the child is too young to open the account, you can do it for them as their legal parent or guardian. 

To do this, you would need to be over 18, have an Australian residential address and currently reside in Australia (or have proof of residency).

You would also need to provide:

  • Identification for yourself and the child
  • Your tax file number (TFN) or TFN exemption

Depending on the bank account, you might be able to choose what level of access the child has to their bank account (online and via the phone).

How can I wire money to a bank account?

You can wire money to an Australian bank account either through your own bank or by using a money transfer company such as Western Union or MoneyGram. Either way, you’ll need the other person’s name, BSB number and account number. If you use a money transfer company, you might also need to provide the recipient’s address for large payments.

Can I close my bank account over the phone?

In most cases, you can close a personal or business bank account over the phone. In fact, this is the best way to ensure you’ve closed an account properly.

By speaking to a banking representative, you can capture and close out any pending transactions, or interest owing/payable on the account being closed.

In the instance where the account is a joint account, or you have multiple bank accounts you want to close, your bank may send you a form that you need to fill out and return.

Either way, you would be advised over the phone of the steps you need to take. Calling your bank ahead of closing an account is often a smart course of action.

Can I open a bank account in another country?

Despite having a bad rap for facilitating tax evasion, it is possible and legal to open a bank account in another country, also known as an ‘offshore account’.

Some people choose to open a bank account in another country to invest overseas, for higher interest-earning potential or to access foreign banking services.

The process for opening an offshore bank account differs depending on the financial institution and country in which you’re opening the account.

Typically, you will need to provide identification such as a passport, a local bank statement and a signed declaration proving the source of the money being used to open your account. Usually, deposits into offshore accounts can be made by international money transfer.

Can you open a bank account at 16?

Yes, you can open a bank account at 16, or even younger. If you’re 13 or under, you will probably need a parent to accompany you to a branch.

Can Centrelink access your bank account?

Yes, Centrelink can access your bank account, but only if you give them a reason to. Centrelink uses data-matching software with other federal government agencies to help it crack down on welfare cheats.

This is why it’s important to give true and matching information to all government agencies.

For example, if you report to Centrelink your annual income is $25,000, but at tax time you report your income as $50,000 with the ATO, it’s likely you’ll be ‘red flagged’.

At this point, Centrelink can legally request that your bank hand over your personal bank account details, to review your finances.

In most cases, Centrelink does not have the authority to take money out of your account. You will usually be given written notice to repay the debt.

However, Centrelink can also reduce your benefits until you’ve paid back what you owe. In extreme cases, Centrelink can garnish your wages and assets (including money in your bank account) until your debt is repaid.

Can I link a bank account to Paypal?

Paypal is a safe and convenient way to pay online without the need to share your financial details. You can send and receive money or accept credit and debit cards as a seller using Paypal.

It’s easy to link your bank account to a Paypal account and start making transactions within minutes.

To start, you first need a Paypal account (it’s free to join). When setting up your Paypal account, you will be prompted to link a credit card or bank account (or both if you wish).

PayPal works without a balance; you can use Paypal to shop or send money when your balance is zero.

When your Paypal balance is zero, Paypal will ask you to choose your preferred payment method at the checkout.

This could be either your linked bank account or credit card. Your bank details can be updated if you change banks or credit cards.