Despite market commentators urging that remaining calm is the best policy to adopt in the face of financial uncertainty, human nature dictates that’s seldom your first response when things turn sour.
Arguably you don’t really know what your risk appetite really is until you face the prospect of losing what you’ve worked hard for.
While we’re told the chances of a full-blown outbreak in New Zealand are low, there remains the possibility Coronavirus could provoke a recession, or at least a short period of negative economic growth due to the impact on tourism and trade. That means you need to be preparing to weather the storm – or perhaps preparing to act on the opportunities the storm will uncover.
The obvious place to start is with focusing on repaying debt. Higher debt puts you in a more precarious position, so you want to address that as fast as you can. In a recession how much cash is going out the door when your income drops is your biggest concern, so a delayed or lower repayment scheme should be considered if times get tough, even if it’s at a higher cost longer term. When it comes to repaying mortgage debt, you also need retain the ability to access that money again should you need it, so a revolving credit could be your friend here.
Take a minute to review your fixed mortgage rate or rates,because if the economy takes a hit there’s a greater chance rates will fall further. You might consider breaking your mortgage now and re-fixing when rates are lower, if a net saving could be achieved. (However, I’d temper that by saying the Official Cash Rate is not the only determinant of bank interest rates.)
Discuss with your employer what the plan is if you or a loved one contracted the virus or needed to be quarantined. If you have to isolate yourselves or the business shuts temporarily, can you work from home, will you use your sick to leave cover that period or will you have to take unpaid leave? Consider whether you have the funds at your fingertips to cover your costs for two weeks, in the event your employer can’t afford to pay you while you're in isolation.
It's worth getting a bit of cash out, perhaps a few hundred dollars, to have on hand. This is a good thing to have in your survival kit whatever the emergency – because getting to a cash machine or using EFTPOS isn’t always possible.
If people are going to panic-buy toilet rolls, then it’s also the time to consider what’s in your financial survival toolkit. Establish what expenses are essential and add them up, so you know how much you need to be able to cover if your income drops. If you can’t save a buffer that would cover those expenses for several months, consider what other options are available to you. Are there things you could sell quickly to raise cash? If need be, who could you borrow money from to tide you over (ideally without incurring the phenomenal interest rates charged by money lenders) Could you dramatically reduce costs by changing your living arrangements? It’s worth thinking about these things ahead of time, so you can quickly swing intoaction.
Hannah McQueen is the founder of enableMe – FinancialPersonal Trainers, a chartered accountant, Authorised Financial Advisor andpersonal finance author.