When you haven’t experienced a recession in your life and you only have stories to rely on, it can be hard to predict what to expect.
For many Australians, a post-coronavirus recession will be their first. This is a scary fact because many aren’t prepared for the shockwave that’s going to hit.
Some may remember the 2009 global financial crisis, although it did not have a huge impact on Australia compared to other countries. The unemployment rate increased from 4% to 5.75% in 18 months, some home loan interest rates almost hit 10%, and spending decreased. The effect wasn’t felt for an extended period nor was it massive.
The Australian economy was much better off than other parts of the world and so most of us, other than Baby Boomers, now don’t have our own lessons to guide us. This lack of knowledge and understanding of the extent of impact of a recession is setting millions for a shockwave in two months’ time.
You may be asking, why will we experience the shockwave in two months when ABS data showed that we are already in a recession? Because that’s when all the stimulus and other measures by businesses and lenders will end.
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In September, the $1,500 fortnightly wage subsidy scheme known as Jobkeeper payments will end. This scheme is currently supporting businesses, keeping 3.5 million Australians in jobs.
A few months ago, banks introduced mortgage repayment holidays, landlords eased rent payments, other essential services like energy and insurance companies, also introduced hardship provisions, childcare was free, early super payouts were available, and a range of other incentives were introduced.
Collectively, all these incentives have been injecting money into the economy enabling Australians to keep spending as they normally would – and perhaps even more than usual.
With constant news about the economic downturn, it’s hard not to panic. But, that is the worst thing you can do.
Stress can reduce your ability to think creatively and strategically. Right now these skills are key. Australians are unsure about their future, the security of their job, financial situation, and what the recession will mean for them.
So, what should you do to prepare?
3 key things you can do right now to get ahead
Cut down extra subscriptions
During COVID-19, many of us signed up to extra subscriptions such as TV streaming, premium accounts, paid apps and more. Cut them out.
Don’t know what you’ve paid? Using a free money app is a great way for you to see how much money you are spending, what regular bills you have, where you are paying extra, and how much you have saved.
You can also get your credit score and regular updates for free.
Spring clean and save
Spring clean your wardrobe, house, your office, storage shed or garage, and anywhere you keep extra possessions that you may not use. Sell the unwanted items on eBay, Facebook marketplace or Gumtree. Save the extra cash or pay down debts.
Create a financial plan
Sit down with your partner, your family, your housemate or whoever it is that you share your expenses with and discuss your finances seriously. You can also do this alone. It's the new financial year, so create a new budget and make sure you look for where you can save money. For example, if you can get a cheaper phone plan, do it. Put that into savings or pay off bad debts like credit cards.
Finder app insights showed that those who have a credit card debt could use the app to potentially save an average of $1,376 each. That’s just on credit cards!
These little steps, where you are actively taking initiative to manage your budget will help you be better off when the shockwave hits.
The truth is that economic recovery is a long road. And I submit that we haven’t even embarked on the journey yet. Individuals who start planning ahead now will be more aware of their financial situation and are going to be better able to ride the bumpy road.
Are you a millennial or Gen Z-er interested in joining a community where you can learn how to take control of your money? Join us at The Broke Millennials Club on Facebook!