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Your Financial Guide to navigating the COVID-19 crisis

by Wealth Architects / 25.05.2020

What has happened in the economy over the last month?

Australia saw the initial peak of the virus and a full lockdown turn into a gradual opening of certain states and territories and for some the ‘light at the end of the tunnel’. But with it has come news of job losses and high unemployment both domestically and globally. The JobKeeper payment for example, is keeping 6 million Australians in a job and the JobSeeker is funding a further 1.6 million Australians who are now unemployed.

In essence, the Government did what it could to put the economy into hibernation to hopefully kick start it later on. However, it now seems they are trying to do this sooner than anticipated to lessen the impact of the predicted 10% June quarter fall in economic growth. How this will pan out is unknown and the risk of a second wave is there. This is a risk the government seems to be willing to take based on how well we have been able to contain the virus so far.

On the other end of the spectrum, the markets have followed more of a positive path rallying in the month of April but staying relatively stagnant in the month of May. The domestic market is down 21.97% and the US market down 16.40% from its February highs. It will be very interesting to see how the next few months play out.

At Wealth Architects we know that we cannot control the markets and the economy, but there are things that we can control. As such, we have outlined 6 questions and answers in navigating the COVID-19 crisis as well as three strategies that you can consider at this time of year to minimise tax whilst benefiting your longer-term investments.

6 questions and answers in navigating the COVID-19 crisis

You may be wondering what are some of the things you can do during this economic and financial market downturn that may help you financially or keep you out of trouble.

1. Should I be fixing my home loan? 

Due to record low interest rates, consider fixing your home loan if you are unable to make extra repayments.

2. What should I do with my excess cash (outside of your emergency fund)?

With interest rates low and due to the decline in equities, speak to your adviser about investing spare cash into the market either as a lump sum or gradually (in line with your risk profile and investment time frame).

3. Should I be reviewing my spending?

As many Australians navigate this crisis with reduced working hours and potentially reduced incomes, review your credit card bills or bank account statements to see if you can identify expenses or subscriptions that can be cut to free up cashflow.

4. Cashflow is tight what about buy now pay later?

Cashflow may be tight during a crisis so when buying goods and services you may consider a buy now pay later option. Be careful as you don’t know what’s around the corner so, if you can’t afford it now during a crisis, you may not be able to at all.

5. What about my Estate Plan?

In a times of a health crisis it is important to review your Will and Power of Attorney. You never know what is around the corner and times like these makes us realise that.

6. I am stressed about my finances and where to next. What should I do?

Financial stress plays a big part in mental health. Speak to your financial planner, we are here to help guide you through times of financial worry and stress if required.

3 ways to minimise tax this end of financial year whilst benefiting your long-term investments

It is close to the end of the tax year and you may have not thought about what you can do to minimise tax (if you have the capacity to do so). Here are 3 things you can consider.

1. Contribution Cap 

Check with your financial planner to see if you have reached or are close to reaching your concessional contributions cap of $25,000. You can contribute up to the cap every year and claim it as a tax deduction. Keep in mind that this cap includes any employer contributions and salary sacrifice arrangements you may have in place and penalties may apply. If you exceed the cap, it is important that you stay within the limits.

2. Catch up Contributions

From 1 July 2018 if you have a total super balance of less than $500,000 on the 30th of June the previous financial year, you may be able to ‘catch up’ on the prior years contribution cap if you didn’t fully utilise the cap. For example if you only concessionally contributed $10,000 in the 2019 Financial year you can contribute up to $40,000 ($15,000 for 2019 and $25,000 for 2020) for the 2020 Financial year and claim a deduction for the full amount as the unused cap caries forward.

3. Government Co Contribution

If your income is under the limit of $53,564 for this financial year you pay be partially eligible to qualify for the Government Co Contribution.

Speak to your financial adviser if you would like more information.

Final Word

From an economic, market and investment perspective, it is always important to keep a long term view. We will get through this event in our lives, so it is important to stay diligent and stick to your financial plan.

However, navigating your way through a health crisis which has turned into an economic crisis, can be a daunting task for all. The Wealth Architects team are here to lend a hand and help you get through these tough times. Some of you may also have friends and family who do not have someone who they can turn to for financial direction and guidance. If this is the case, we are able to assist and help. An initial consultation with us is obligation free.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent