Now more than ever we all require quality financial advice. COVID-19 has created a very unprecedented and uncertain time.
Many readers, if not most, will be experiencing some form of cash flow difficulties. Some readers may have been made redundant while others have reduced working hours. Retirees may not be receiving the same rental income as they may have pre-COVID-19 as they have had to concede and offer rental assistance to their commercial or residential tenants. Self-funded retirees who have invested in the share market may not be receiving the dividend income they once received, as companies such as NAB have cut their dividend, and others such as Westpac and ANZ have postponed the payment of their most recent dividend.
The following is an extract from our checklist of the issues we consider when a client experiences some form of change that has a financial impact on their life, such as a divorce, the death of a partner, being made redundant etc. Circumstances created by COVID-19 will equally fall into this category.
What to consider when your financial position is disrupted:
- Assess your income for the next 6 months.
- Review your bank statements and credit card/debit card for the past 3 months. Break up your expenditure into what is essential and what is non-essential.
- After completing step 1 and 2 above, determine whether your income for the next 6 months is likely to be larger than your essential expenses for the same period.
- If your projected income is likely to be greater than your essential expenses then you need to attend to cancelling any unnecessary expenses such as subscriptions to magazines, games and movies until your income starts to improve.
- If your expenses are larger than your essential expense you need to consider Centrelink entitlements and reducing some of your essential expenses. For example:
- if you are renting you should consider approaching your landlord for a rent amnesty, a rent free period or a rent reduction. Whilst your landlord will not want to reduce the rent, they will be well aware that finding a respectable tenant who pays on time will be very difficult at this time.
- If you have a mortgage, you should approach your bank for a stay on repayments or interest only until the financial climate improves.
- If you have any personal loans, leases or hire purchase agreements, speak to your finance company and advise them of your financial circumstances.
- If you have credit card debt and cannot make the minimum repayments contact your bank.
- If you are struggling to pay your utilities such as electricity and gas, do not wait until you receive the bill, contact the company now to negotiate a deferred payment plan.
- Are you paying PAYG instalments – speak to your accountant and see if this can be varied.
For self-funded retirees who have invested in the stock market, you need to review all your investments:
- Ensure that the companies that you are invested in have a large market capitalisation.
- Ensure that the entities do not have a large amount of debt.
- Try to avoid investments in unlisted trusts.
- Avoid investments in mortgage trusts.
- Avoid investments in ventures that offer mezzanine finance.
- Avoid structured products.
- Avoid subordinate notes.
- Invest cash in those banks that receive the Australian government guarantee up to $250,000.
- History tells us that now is not the time to chase property trusts that offer a high-income return.
- If you satisfy the points above and have invested in large quality businesses, history tells us that you should continue to follow your investment strategy.
- If you have quality investments that are currently reflecting an unrealised capital loss due to COVID-19, now may be a good time to consider transferring these assets to your SMSF or from your SMSF, if you satisfy SIS Act provisions and regulations.
As I mentioned above this is an extract from our extensive checklist. If you have concerns please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166.