What is a recession and what can I do to help recession proof my finances?
August 26, 2020
The last time Australia was officially in recession was way back in 1991. So there’s an entire generation of Australians who’ve never experienced one.
Economists usually define a recession as two consecutive quarters where the Gross Domestic Product, or economic output, of a country shrinks. Australia's GDP fell by 0.3% over the March 2020 quarter. With another fall in GDP in the June quarter, Federal Treasurer Josh Frydenberg has confirmed Australia is in a recession.
Any market downturn can be daunting. Unemployment rises and incomes shrink, but the bills keep coming in. But there are things you can do. Looking at your finances now can better prepare you to meet any challenges you may experience.
What’s your number?
Whilst it is always important to budget, it’s even more so during economic downturns. Using tools such as our budget planner can help you to better understand the minimum amount you need to cover your essential expenses. A good starting point is to look back on your transaction history over the last 12 months.Be aware that little expenses add up
2019 AMPD Research found the average household pays $420 a year for video on demand services*, while a 2018 study by finder.com.au showed our average annual UberEats consumption is $1590#. Keep in mind these were before the lockdown came into effect! For more inspiration here are 18 tips for saving money.Look to save on essentials
Some bills are unavoidable. When it comes to insurance, utilities bills or your phone plan, you might be able to lower them. This can play a big role in reducing your spending.Focus on reducing your debt
Having a plan in place to pay off your debt is especially important. It is a good idea to pay off personal loans and credit cards first, as these usually attract the highest rates of interest. Consider consolidating these loans to reduce loan management fees. HECS and HELP loans are less urgent to repay whilst inflation is at its current low levels. Once you have paid off your high interest debt, you may be better using any additional money to build your savings buffer. If your home loan has an offset account, this a flexible way of minimising your loan interest while building your savings buffer, without losing access to money you may later.Increase your income, if you can
While you're actively trying to reduce your spending, try to find ways to bring in more money if possible. This is especially important if you've already been following a budget and don't have many opportunities to reduce your spending further. If you need more inspiration and ideas, here are 22 ways you can make some extra cash.Build a buffer
If you are in a position to do so, aim to build your safety net of savings to cover 3-6 months of your essential expenses. The average Australian has less than one month of income as a savings buffer, so any boost to this is a step in the right direction.Be proactive if you’re experiencing hardship
If you are experiencing financial hardship, it is better to address this with your providers proactively. Creditors have a legal obligation to offer a financial hardship provision. It is in their best interest too! You can also contact one of our Financial Advisers) on 1300 033 166 for advice on topics inside and outside of super.Have faith in your plan
Despite recent turbulence in the markets, advisers say it is important to focus on the long-term if you are already invested. Upturns can happen almost as quickly as some of the downturns, so you may miss that opportunity^.
Taking control of your finances can be daunting at the best of times. When facing a recession, it can be even scarier. Remember there are steps you can take to help you make better financial decisions.
Need help?
If you’d like some help sorting out your finances, TelstraSuper Financial Planning can provide advice covering a range of topics. You can get tailored financial advice from TelstraSuper Financial Planning via video conference without compromising on service. Call us on 1300 033 166.
*https://www.ampd-research.com/insights
#https://www.finder.com.au/australians-spend-1590-each-year-on-delivered-food
^https://thenewdaily.com.au/finance/your-budget/2020/04/15/imf-recession-finances-australia/