With the country already in a recession, Australians are bracing themselves for the most significant federal budget deficit since World War II.
While the government is spending billions of dollars to provide stimulus support in these difficult times, Australians are concerned about whether their financial situation will weather the storm.
As uncertainty rises and growing unemployment potentially on the horizon, RateCity has put together four tips to help put your hard-earned money to better use.
1. Top up your super
If COVID-19 hasn’t taken a toll on your personal finances, and you happen to have some spare cash from staying at home more, it could be worth considering making extra contributions to your super. This may help boost your retirement money, as compound interest and potential investment returns work hand-in-hand to build your super over time.
There are a few ways to do this, including:
- Pre-tax salary sacrificing – Known also as concessional contributions, this generally comes from your pre-tax income. You may need to request your employer to arrange this.
- After-tax contributions – Non-concessional contributions come out of your take-home pay, as you would’ve already been taxed on this money. This type of top-up can be one-off or regular.
- Spouse contributions – If your spouse’s work has been affected by COVID-19, or if they earn a lower or no income, it’s possible to split your employer contributions with your spouse.
To help you estimate the impact of additional contributions on your super, consider using MoneySmart’s superannuation calculator.
2. Focus on mortgage repayments
While hundreds of thousands of mortgage holders have put repayments on hold, if you haven’t been financially hit by the pandemic, you could consider making extra mortgage repayments. Your home loan is likely to be the biggest personal debt you hold, so it may make sense for some households to try and minimise this.
Making extra repayments may help you pay down your home loan sooner. Let’s say a mortgage holder on a $300,000 home loan with a 3 per cent interest rate over 30 years pays an extra $100 per month. Doing this may potentially slash their loan term by three years and four months and save them more than $19,000 in interest costs.
Keep in mind that not every lender allows borrowers to make extra mortgage repayments, and some may charge a fee to do so. It’s best to consult your lender for specific terms and conditions.
3. Set up a rainy-day fund
Perhaps your priority now is to keep your close and accessible in case something unexpected comes up. If this is you, it could be worth setting up an emergency fund to safeguard your financial future. Building a kitty could help if you or your partner loses your job or if your employer stands you down due to the economic downturn. It could also come handy if a hefty medical bill comes your way.
As a starting point, it may be a good idea to ensure you can access $2,000 in case of an emergency, though everyone’s spending patterns and financial situations will differ. You may want to put together a budget to help you understand how much you might need for an emergency fund.