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.

 

Did you find this helpful? Why not share this news?

Advertisement

RateCity

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the ratecity.com.au Privacy & Cookies Policy and Terms of Use, Disclaimer & Privacy Policy

Advertisement

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.

Can the government take your money from your bank account?

There are some instances when the government can take money from your bank account. This generally occurs in situations where you have an outstanding government debt.

Before it can take money from your bank account, the government authority owed money would first need to issue a garnishee notice. 

A garnishee notice is issued by the government agency (such as Centrelink or the ATO) to a third party that holds money for you or owes you money.

To take money from your bank account, your bank would be issued with the garnishee notice requiring it to pay ‘your money’ to the requesting agency to satisfy the debt.

How do I open a bank account for a baby?

If you’ve just welcome a new baby into the world, congratulations. Opening a bank account for your child can be a wonderful first gift.

Before you can open your child an account, you’ll need to have a birth certificate or passport for your baby.

As the parent or guardian, you’ll also be listed as a joint holder on the account. This means you’ll need to have proof of your identification and address (a driver’s licence, passport, birth certificate or Medicare Card).

Many banks and credit unions offer baby banks accounts. Usually, you can apply online; otherwise you can head into a local branch or office with your documents.

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.

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.

How do I open a new bank account?

There are a number of ways to open a new bank account – online, over the phone or in the branch. The trick is to decide what type of bank account you want beforehand.

It might sound like a simple enough task, but there are literally hundreds of bank accounts to choose from. And each offer their own banking features and benefits.

A comparison site like RateCity can help you work out what bank account product matches your needs.

Once you’ve made up your mind what you want, it’s advisable to have the following information ready for the application process.

  • A couple of forms of identification (such as driver’s licence, Medicare card, passport)
  • Tax file number
  • Residential address, contact phone number and email (though email is not essential)

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.

How can you cash a cheque without a bank account?

You can cash a cheque without a bank account if you visit the bank that issued the cheque. For example, if somebody sends you a cheque from Bank X (as written on the cheque) and you visit Bank X, it’s likely that Bank X will let you cash the cheque – provided the person who wrote the cheque has enough money in their account. Bank X would probably charge you a fee for the service.

Can I have a PayPal account without a bank account?

You don’t need a bank account to send or receive money through PayPal. However, you do need a bank account if you want to withdraw money from your PayPal account.

Do you need a bank account to sell on eBay?

You don’t need a bank account to sell on eBay. But if you don’t have a bank account, you must provide either a credit card or debit card.

How do you delete your bank account from PayPal?

Deleting your bank account from PayPal is a simple three-step process:

  • Go to your Wallet
  • Choose the account you’d like to delete
  • Click ‘Remove bank account’

Can you open another account at the same bank?

Yes, you can open another account at the same bank if you already have an account there, but some banks place a limit on how many specific accounts you can open.

Generally, though, it is possible to have more than one everyday account, one personal account and one joint account, or have different types of accounts – such as a transaction account and a savings account.

Keep in mind that some bank accounts come with fees, so you could be charged twice for having two types of the same account at the same bank.

Also, if you have more than one high-interest transaction account at the same bank, only one account will be able to earn the highest rate of interest.

How can I deposit cash into my bank account?

The traditional way to deposit cash into your bank account is to go to a branch and give it to a teller. These days, many banks will allow you to make deposits through an ATM as well.

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.