10 Financial To-Do's Whilst In Lock Down
There have been a lot of changes here in New Zealand as a result of COVID-19, in particular the Government announcing a Level 4 Alert and placing the country into lockdown.
With the country now in isolation, there is understandably a lot of concern around people’s health and finances.
As an Authorised Financial Adviser, I would like to share some tips on how you can help yourself financially during these times, with some practical financial to-do’s whilst in lock down.
1. Understand what this lock down means for you, your employer, and/or your staff
Are you able to work from home? Will your employer continue to pay your salary despite an inability to work due to the government restrictions? Some will be affected more than others; self-employed people might suddenly find their incomes stop overnight while for other’s its business as usual but from home.
2. Apply for the Government support if are entitled to
The government is doing what they can to subsidise lost income and support businesses during these times. The package being offered is continuously being updated to its important to stay abreast of what benefits you may be entitled to.
COVID-19 Wage Subsidy
Wage subsidies will be available for all employers that are significantly impacted by COVID-19 and are struggling to retain employees as a result. The scheme will be open to sole traders and the self-employed as well as firms. Click here to view the full fact sheet.
COVID-19 Leave Payment
Workers and businesses have responsibilities to prevent the spread of COVID19. The purpose of the COVID-19 leave and self-isolation scheme is to support workers financially to self-isolate, or while ill with COVID-19, where this is required so that all businesses and workers can do the right thing. Click here to view the full fact sheet.
If eligible, the employer will be paid $585.80 per week for full time employees and $350 for part time employees. This support is available for 12 weeks.
It is important to keep up to date with any changes to these subsidies.
Employer application via link: https://services.workandincome.govt.nz/ess/employer_applications/new
Self Employed/Contractor via link: https://services.workandincome.govt.nz/ess/trader_applications/new
General information via link:
There is some tax relief including:
- Increase the provisional tax threshold from $2,500 to $5,000.
- Increase the small asset depreciation threshold from $500 to $1,000 - and to $5,000 for the 2020/21 tax year.
- Allow depreciation on commercial and industrial buildings.
- Removing the hours test from the In-Work Tax Credit from 1 July 2020.
- Interest will be waived on some late tax payments with IRD.
If you do not have an accountant and need some advice on what this means for you, I'd be happy to put you in touch with someone.
3. If you have an existing mortgage, understand your options to consider:
- Putting your mortgages on interest only. This will reduce the payments you need to make. You can do this even if you are on a fixed rate.
- Extending your term – as an example if your mortgage is due to be repaid in 22 years, you can extend to 30 years, which will decrease your repayments.
- Asking for a mortgage holiday, but this should only be considered if you are in real trouble. This means you don’t have to meet your mortgage payments for 1-3 months, and the government has just asked banks to extend this to 6 months. However, you must be aware that the interest payments will be added to the mortgage, which means mortgage repayments could increase once mortgage holiday ends and the total interest paid could be more.
- Top-up your mortgage, if you have income and equity to do so (this before any job losses or you will start to struggle).
It is important to do what you can to make sure you can meet your mortgage commitments. If you are unable to do so, you run the risk of a mortgagee sale, where the bank sells your house in a quick-fire sale to get back what you owe them. You do, however, have the above options to consider to help you.
Freeing up cashflow from your mortgage, especially when mortgage rates so low, is a much better option than defaulting on your mortgage, borrowing on credit cards, or withdrawing from an investment which is currently in a market dip (see point 5).
Understandably the banks are very busy at the moment as they are inundated with all sorts of queries.
If you would like some help with your mortgage to discuss these options and to apply for the best one for your situation, I recommend that you speak with a mortgage adviser.
I would be happy to recommend a great one to you if you don’t have one already.
4. If you are renting
If you are renting and find yourself coming into trouble paying your rent, have an open conversation with your landlord. They might have some options to make changes to their mortgage (see above) and pass these benefits down to you. As an example, putting their mortgage on interest only and requiring you to only pay the interest costs might work for them. We are all in this situation together, and at times like these they might struggle to quickly find new tenants.
“The stock market is where money is transferred from the nervous to the patient.” - Warren Buffet
5. Your KiwiSaver investment and investment portfolios
No doubt you will be aware that your KiwiSaver and investments will be affected by what’s going on. As we are well aware that the economy will likely struggle over the next few months, the value of the shares in this economy are valued at a lower price, because we forecast the businesses earnings to be lower. Some things to consider:
- As hard as it is now, we must have faith that the markets will recover, whether that’s in the next few weeks, next few months or even a year away- in the history of markets this has always bounced back.
- Remember that your investments don’t just invest in New Zealand, but in all sorts of companies, industries and countries all around the world, some of which are having a hard time, and some are starting to recover already.
- Your investments should be reflective of your personal situation, goals and timeframe. If they are not, this should be reviewed. If you are in an aggressive KiwiSaver/investment, hopefully this is because you have a long timeframe until you need these funds out. Give them time to recover.
- If you are nervous and considering changing your investment profile, now might not be the best time to do this. Investing is a long-term game, and as Warren Buffet says, “The stock market is where money is transferred from the nervous to the patient.”
- For someone with excess cash or liquid assets this might be a time to consider investing in the market, as you will be buying while its ‘on sale’, so when we reach recovery your investment will increase significantly.
Over the last few weeks, and in the weeks and months to come I will be helping my clients make good decisions with their investments, as this is different for everybody and no one size fits all.
If you are nervous, rather than listening to your neighbour, I am happy for you to give me a call and we can talk though what you should be doing based on your situation.
6. Your KiwiSaver and a financial hard ship withdrawal
You can apply to access funds in your KiwiSaver account should you be in serious financial hardship. I would recommend trying to implement other options ahead of withdrawing these funds (option 2, 3 and 4). These savings are for the purpose of providing for your retirement later on in life, but more importantly, given the dip we are experiencing in the market we want to try and avoid cashing in these investments while they are temporarily down in value. However, should this be required, you can apply to withdraw some of your funds on the following grounds:
- Unable to meet minimum living expense.
- Unable to meet mortgage repayments on the home you live in, resulting in your mortgage provider enforcing the mortgage on your property.
- Suffering from a serious illness.
You will need to obtain the withdrawal forms from your provider, and evidence will need to be submitted. You need to prove that all other means to rectify your situation has been taken already e.g. debt consolidation etc, and a letter showing that this has been declined submitted. You will need to submit copies of outstanding bills issued within the last 30 days and can apply to access funds to pay these arrears and debts related to minimum living costs.
The main issue with applying for a KiwiSaver financial hard ship withdrawal at this time is that this application forms needs to be signed and witnessed by an authorised person, such as a justice of the peace, solicitor or notary public, which may be hard to come by now.
The government may, in time, consider looking at ways they can allow use of KiwiSaver funds more accessible, so it is worth keeping up to date with their announcements, should you require it.
7. Your personal insurances
It is now more important than ever to look at what insurances you, your family or your business needs. We are not invincible, and insurance is designed to protect your biggest risk, such as the financial impact of a death in your household or a key person to your business, or protecting your ability to earn an income even if you fall ill.
I recommend reviewing the covers that you have, or get in touch with me to have a chat about where your insurance premiums should be directed to cover your biggest risks, so we can look to get this in place for you ASAP.
Some insurers offer some premium flexibilities, for those who might struggle to afford the premiums in the coming weeks. If you are unsure what your current provider offers, let me know and I can pass on some information that you might find helpful.
8. Emergency cash fund
If you don’t already have an emergency cash fund, now is a good time to start building one up. This is easier said than done at a time when households are temporarily dropping down to one income. Some of the tips above, see option 3, may save you repayments on your mortgage temporarily. Rather than spending this money, build up a cash buffer. We don’t know how long we are going to be in this. Try to reduce your spending on unnecessary things, and instead buy these goods and services in a few months when things have settled.
If saving your cash isn’t an option right now, consider alternative ways to access money if you need to, such as increasing your credit card limit, or seeing what equity you can access within your property (see our mortgage advisers). I don’t normally advise using high interest debt, so remember you will need to pay this back and reduce your limit or cancel your credit card when we come out the other side of this, however it might be reassuring to know there is access to some money should you need it in an emergency.
9. Look to the future
Rather than moping around the house for the next four weeks, use this as a time to be productive, and to do the things you have always wanted to do but never had the time.
- Read that book that you have always wanted to, or better yourself with a skill required for work that will make you more valuable.
- Perhaps go over your bank statements and start a budget, identify where you might be wasting money.
- Have a think about your financial position, your assets and liabilities. Financial advisers like myself are generally working from home, so schedule in a Skype meeting with one and see how they can help you.
- How will you re-position your current business or job role to reflect where we are heading?
- Always wanted to start a business? We are already starting to see business adapt by going online or providing contactless deliveries. What opportunities will this strange new world provide.
10. Look after your health
However, it is more important to look after the health and wellbeing of yourselves and your families first and foremost. Enjoy this isolation time with your family and avoid contact with anyone outside of your household and we can return to normal as soon as possible.
I hope these financial tips are helpful, and please ask questions if you have any.
Take care, I am here when you need me as all of my colleagues are at Lifetime for our clients.
Chané Berghorst is an Authorised Financial Adviser with the Lifetime group. She enjoys working with clients to make smart decisions around their finances and lives just outside of Auckland.
A disclosure statement is available on request and free of charge.