She's On The Money - COVID-19: What NOT to do with your money during a crisis

Starting point is 00:00:00 She's on the money. She's on the money. Hello and welcome to a special episode of She's on the Money, the podcast for millennials who want financial freedom. Today's episode of the show is brought to you by UpBank, the digital bank designed to help you organise your money and simplify your life. My name is Victoria Devine.

Starting point is 00:00:29 I'm a millennial, a financial advisor, and I'm usually joined by my sassy sidekick, Georgia King. Alas, today's episode of She's on the Money is going to take a different structure to our usual episodes. As I thought it was important, we had a chat about the only thing anyone is talking about right now, COVID-19. Anxiety is peaked across the globe right now with COVID-19 impacting our lives in absolutely unprecedented ways.

Starting point is 00:00:54 But how worried should you be about your financial status? What should you be doing if you've just found out you've been stood down from your job? How do you sustain yourself financially if you don't have an emergency fund? There's no denying that the strain this pandemic is placing and will continue to place on the global economy is immense. And while public health and safety is our first priority, and the reason I made the decision not to invite our pal Georgia on for this episode, the financial impact of COVID-19 is something we absolutely need to be discussing. However, that doesn't mean we have to be in a state of panic. At a time like this, when everything feels completely foreign, feeling empowered financially

Starting point is 00:01:34 will help you feel a little bit less stressed and a little bit more in control at a time when not a lot is actually in our control. What we're being faced with right now is indisputably daunting, but it's not necessarily going to be impacting you as negatively as the media may currently be reporting. So let's just jump right in. It's no secret that the corona crisis has already delivered a massive hit to the Australian economy, having already cost so many of us our jobs as across the country, restaurants, cafes, beauty salons, hairdressers, retail stores and so many other businesses have suddenly been deprived of customers and cash flow due to new travel bans, our new social distancing rules

Starting point is 00:02:18 and people just holding back on non-essential spending because they're uncertain, they're scared. I won't harp on about this for too much longer, I promise. However, the extent of the damage this virus has already caused can be seen very evidently in the share market, which the share market's gone crazy this week. Despite some of the unexpected surges we saw this week, the share market is still trending downward and probably will continue to do so. Since people started selling their shares and exiting the market a month ago, overall, shares have now lost about a third of their value. Whilst we're not yet at the same point as we were when we're in the GFC we're definitely on a similar trajectory so it's really important that we are prepared.

Starting point is 00:03:01 Whilst shares are losing value if you're a shareholder and you own shares you need to remember that you only lose money if you sell your shares whilst they are currently valued at less. For example if you had a share that was worth $100 before the market started to decline and now it's only worth $66, assuming its value has now decreased by a third, you still own that whole share. You don't own less shares. You just have a share that's currently valued at less, which is really, really important to remember. Because if you're a long-term investor, which a lot of us are, and whilst it feels really worrying, this is actually a part of the ride. It's a part of the journey. If you decide to panic sell and get rid of your share or your micro-investing platform,

Starting point is 00:03:45 this is when you're probably going to lose the most money. This is behavioral finance in action and I talk about it all the time. This is the stuff we've been talking about for so long. This is when we need to remember that people are not rational beings especially when it comes to money. So it's really important to check ourselves, check our facts, get some advice to make sure that we're not making decisions just purely based out of fear at the moment. Large listed businesses and behavioral finance aside, the ones arguably feeling the most pain are smaller medium-sized businesses who really rely heavily on face-to-face trade. These are our restaurants, these are our hair salons, cafes and shops, many of which who have been pushed into closing far before the

Starting point is 00:04:30 mandatory shutdowns were put in place because they simply didn't have enough business coming in the door to sustain themselves. This week has been brutal. I've seen friends and so many people in our community have to make the heartbreaking decision to lay off their teams and close their businesses doors. This week has been full of teary phone calls and 2am texts for so many of us. All of a sudden we've been thrown into financial hardship, financial hardship we didn't even see coming. Not a lot of us have planned for this so let's jump into some of the questions that our community has had over the last couple of weeks in relation to the world's current financial situation. Brittany asked, Victoria, should I switch my super account from high growth to

Starting point is 00:05:17 conservative? I'm really worried about how much my super account's already lost. Okay, first things first, I think we need to remember that superannuation is a long-term asset. When the share market is so volatile, if you're in a growth portfolio, you're going to see some of that volatility and that's just the way it is. When we look at risk profiles and we pick a superannuation fund that is in line with our risk profile, we are not picking that for the short term. We're not picking that for two years, four years, five or even ten. We are picking that portfolio to carry us through hopefully all the way till retirement. So if you've picked a growth portfolio because you feel like it aligns best to your personal risk profile and your personal situation and you've

Starting point is 00:06:03 found that it has decreased in value, I think you need to have a really long hard think about why you've got superannuation in the first place. If you're in a growth portfolio and let's say you had $10,000 invested and that growth portfolio has dropped by 20% over the last few weeks, that's going to take you down to a total of $8,000. If you switch your growth portfolio down to a conservative portfolio, that's usually made up of things like cash, bonds and fixed interests, all of which on average return a lot lower than the average share market does. So what you're doing is actually crystallizing those losses, which means that you're accepting the losses in your super fund. You're saying, okay, I had $10,000. Now I have eight. I'm going

Starting point is 00:06:49 to pull that $8,000 out and invest it in another asset. That means you're essentially locking in that $2,000 loss and you're putting yourself in a position where the shares can never make back what they've lost because now they've bought into a different asset. So you're not giving your shares the opportunity to grow again over the long term. If you choose to change your investment profile within a superannuation fund, it means that you sell down one asset to purchase another. So for example, if you are in a growth portfolio, a majority of your portfolio will be made up of international and Australian shares. It means that you will sell down those shares to buy more conservative assets like bonds, cash and fixed interest, like I mentioned before. So essentially

Starting point is 00:07:38 what you're doing is switching one asset for another. And if you do this and then the share market returns and you think, OK, fantastic, that's better. I'll change from my conservative portfolio now back into a growth portfolio. You've actually already missed out on the potential recovery that your shares could have had. You're not actually saving anything in the longer term because you've crystallized your loss when it was down at $8,000. You've put it into cash. It didn't have the chance to recover. And then when you put that $8,000 back into a growth portfolio, you're buying less shares than what you started with. It's also really important at this point to remember that if you are still contributing to your superannuation and you're

Starting point is 00:08:21 buying shares, this usually means you are actually buying more shares than what you were before. So instead of just buying 10 shares, you might have the opportunity to buy 12 or 14 shares on average. Thus, you're purchasing more shares. So when the market does recover, it'll probably bounce back a whole heap quicker than it would have if you weren't contributing during this time at all. So should she switch her super from growth to conservative? That's not a decision I can make. But what I want you to do is be educated on this. And if you are going to make that decision, the best thing you can do is get some advice on it first.

Starting point is 00:09:01 Our next question is from Evie, and she asked, should I take all of my money out of my bank account? I'm worried the banks are going under. I have heard this so many times this week, from messages that have been sent to me on Facebook to being at my local cafe lining up socially distancing of course and hearing the guy on the phone in front of me saying oh no no I'm going to the bank later this afternoon I'm going to be starting to bring out all of my cash it drives me insane. I have heard it too many times and yes these are really scary times but that does not mean that you should be heading down to your

Starting point is 00:09:36 bank and draining your account to put all of your cash under your mattress. A few people have actually asked this as well. Maybe it's because Bianca's friend's mom's cousin's dog told her that if banks crash, you'll lose all your money. And the answer is actually you won't. Just like our really good friends at UpBanking, all good banks in Australia are authorized deposit taking institutions. So that's ADIs in banking lingo. And these fall under the financial claims scheme, the FCS, yay, lingo. And because of this, it means that we can be sure that our money is safe in our banks here in Australia. In fact, the government actually guarantees up to $250,000 for each account that you have with each different bank. So in short, they've actually got our backs during

Starting point is 00:10:23 this period. Next question is from Emily and she asked, should I make use of the super access policy and take money out of my superannuation? Whilst I can absolutely understand that so many people are going to be experiencing financial hardship over the next few months, my advice as a financial advisor is to please, please, please try and avoid accessing your superannuation unless it is absolutely necessary. Also understand that for a lot of people being able to pull money out of super is going to be the thing that pays their children's school fees and keeps a roof over their head. Withdrawing your superannuation now is going to have a significant impact on the balance of your superannuation when you get to retirement. For example, if you're 35 and you choose to take

Starting point is 00:11:12 $10,000 out of your super this year, you're essentially taking $100,000 from future you. If you're 25 and you're thinking about doing the same and taking $10,000 out of your super, that's looking like a whopping $233,000 that future you isn't going to have access to. This stuff matters. It is massive. And we're not even talking about the limit of the scheme. So the scheme stipulates that you are able to take $10,000 out of your superannuation for the 2019-2020 financial year, and then another $10,000 out for the 2020-2021 financial year. So that's $20,000 in total. So double the numbers I'm talking about, and you'll see why I'm so passionate about educating people around the decisions that

Starting point is 00:12:03 they're making. If you don't have a choice, which some of us aren't going to, please don't beat yourself up about it. Just make a plan to replace it once you're back working and earning an income. We're all doing the best that we can with the tools and resources we have. And I'm so, so, so grateful to be in a country where this is an option that we're able to take if we need it. But I will say here, and I ranted about this in our Facebook group earlier this week, that I'm really disappointed how the government has managed this. So it's not that they're giving us access to super. I think that that's really important and it's a resource that can save a lot of people. However, I am really upset around the lack of education that has been provided when this option was made available to us.

Starting point is 00:12:49 It's not just a $20,000 decision we're making here. it is more than $200,000 in the long term. This is serious. We need to take it seriously. Your superannuation isn't just a bank account full of cash that you can go and spend. It's an asset that is invested for our future and we need to try and keep it there as much as we can. Our next question came from Beck. She sent me a really long-winded message which I have gotten back to her about on Facebook but essentially she said I've been stood down what do I do? I would like to before answering this actually do a massive shout out to our friend Kat. For those of you who are in our Facebook group you will know that Kat has been working absolutely relentlessly on a

Starting point is 00:13:36 thread that we created earlier this month on employment law. Kat is an employment lawyer who messaged me earlier this week she's also a friend of mine and she said Victoria what can I do I want to help there are so many people that have so many questions that are going unanswered and we had a really great conversation about how I didn't feel empowered to answer a lot of the employment related questions because it's not my specialty so Kat put her hand up and said all right if you create a thread I will answer all of the questions and that post now has more than a thousand comments on it I am so proud to say that she is a part of our community and I want to thank her from the bottom of my heart for actually helping our community out in a time that they need it so

Starting point is 00:14:18 desperately. Back to the question though, if you've been stood down, what do you do? First things first, you are not alone. Do not panic. As much as it can feel really, really daunting to be left without a job in such a tumultuous period of time, we need to make a plan. We need to keep our heads on quite straight so that we can plan for the future. The first things first is set up a plan. work out what your budget is as confronting as it is to do a budget when you're in a situation where you don't necessarily have any income coming in it is so important to know where we stand and where we can go from here be ruthless with your budget what things can we put on pause so that we can save as much money now and not deprive ourselves for the long term other things that

Starting point is 00:15:05 you can negotiate down first things first i would be talking to your bank if you've lost your job have a chat to your bank about any available assistance. You might spend a little bit of time on hold but they'll be able to send you in the right direction. Second is look into whether you are eligible for Centrelink or not. I never thought that as a financial advisor one of the biggest pieces of advice I would have for my community would be to look into Centrelink yet here we are. Centrelink is such an incredible tool and we are so lucky to live in a country that provides us with such support in our Facebook group there is a thread of people answering Centrelink related questions there is so much there but essentially if you have suddenly lost your income what you

Starting point is 00:15:55 need to know is that you do not need to go to the Centrelink office you actually just need to jump online. Because of how many people are applying for Centrelink at this point, giving them a call is going to be fruitless. It is going to be really, really hard because they are experiencing such an influx of calls and messages. So what I can recommend is their website. If you go to my.gov.au, it will take you to a sign-in page. If you haven't signed into my.gov before, create an account. From there you need to register your intent to claim. So if you haven't already you need to link your Centrelink to your myGov account. It can be a little bit fiddly but it's quite simple to work out from the myGov instructions and you can register your intent to claim the

Starting point is 00:16:42 coronavirus supplement as well as the job seeker payment if you have been made redundant, you have lost your job or you have been stood down for the foreseeable future. The coronavirus supplement is $550 a fortnight, which is $275 a week. And it is the JobSeeker payment, which used to be known as Newstart, but it is effectively double what it was before. The payment for the JobSeeker allowance is $565.70 plus the $550 supplement per fortnight. So this is massive for people who have lost their jobs. Payments will begin on April 27th and it'll be available for at least six months. So if you're eligible for this and you have lost your job, this is the one thing that I would recommend you jump on and do and register as soon as possible because you will be back paid from the date you instate your intent to claim, not the date that you actually finally register for it. So this needs to become a priority because at the end of the day, cash flow is king.

Starting point is 00:17:45 And if you have lost your cash flow, replacing it as soon as possible is really, really important. The next thing to do is look at your expenses and look at your budget and make sure that you are prioritizing the essentials. So there are going to be things that you can't change but there are going to be things that you can change. Can you go without some of those non-essential items for a short period of time while you get back on your feet? The next thing is just don't be too harsh on yourself. No one ever wants to be under financial stress and no one puts themselves in these positions on purpose. I've heard from so many people this week saying, oh, I wish I had an emergency fund. I didn't have an emergency fund. Conversely, I've heard in the media from a lot of

Starting point is 00:18:27 quote financial experts over the last couple of weeks saying that this is the time that we rely on our emergency funds. Unfortunately for a lot of us, we don't have emergency funds that are going to be able to sustain the next three, maybe even six months worth of income. So for us, it's more about empowering ourselves with the tools and resources we have access to so that we aren't experiencing financial hardship without knowing what we can do. For any of you who need a helping hand during these super trying times, there are a number of other resources that you can and I recommend you do reach out to because you are not alone. Whilst understanding our finances is really important, it's also really important to understand that this is going to impact a lot of our mental

Starting point is 00:19:14 health. If you have any questions about debt or you're struggling with money, the National Debt Helpline on 1-800-007-007 is a great place to start. And if you're struggling with anything else, I've put a number of different resources in the pod description for today. That's all we have time for today. But before we end, I just want to remind you all to be kind. this world is becoming a challenging place to be and the importance of community and being kind to one another is going to be more important than it ever has been before and i don't say that lightly this period to come is going to be full of heartbreak disappointment and financial stress for so many of us not one person in our community is not going to be impacted in some way by this

Starting point is 00:20:03 yes some of us more than others so keep contributing to the community and ask your money questions and stop spending unnecessarily focus on bumping up that emergency fund if you can and we'll keep creating content we're here for you and we're so eternally grateful that you guys have always been here for us too we want she's on the money to continue to be the space that you guys reach out to when you've got a money problem or dilemma so let's keep that coming just before i head off let's quickly wrap the boring but really important stuff The advice shared on She's on the Money is general in nature and does not consider your individual circumstances. She's on the Money exists purely for educational purposes and should

Starting point is 00:20:47 not be relied upon to make an investment or financial decision. And I, Victoria Devine, am an authorised representative of Australia Pacific Funds Management Proprietary Limited, And as always, a massive shout out to our pal and audio legend, Ryan John, for putting this pod together. If you'd like to hear more from the She's On The Money team, please join us on Facebook, where our community shares money, tips and tricks every single day, free of judgment. Search She's On The Money on Facebook and join us. if facebook's not your thing or you want to find us on both we're also on instagram we're at she's on the money aus catch you next time

She's On The Money - COVID-19: What NOT to do with your money during a crisis

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