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:
- Bank of Queensland - Fast Track Savings Account - 1.85%
- 86 400 - Save Account - 1.85%
- Up Bank - Saver - 1.85%
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:
- American Express Low Rate Credit Card at 8.99%
- Heritage Bank Gold Low Rate at 10.80%
- Teachers Mutual Bank Visa Credit Card at 11.50%
- BankVic Visa Silver at 11.95%
- Hume Bank Value Visa at 11.95%
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.
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.
- Learn how you can talk your way to a lower interest rate, and you may save yourself hundreds of dollars a year.
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.