Like every pandemic in history, there is no doubt COVID-19 will have lingering effects on us all. Research has already shown shifts in how we prioritise and value so many things in the 12 months we’ve lived with the pandemic reality: from job security and flexibility to travel, social freedoms, exercise and most importantly, connection with family and friends.
Among the lingering effects will be the financial upheaval many people have experienced, some for the first time. Whether brought about by unexpected career change, the fluctuating value of assets, or delayed retirement or estate planning, the resulting fear and uncertainty is real.
We’ve supported many new clients through this upheaval, and it has been a timely reminder of the value of a strong relationship with a financial adviser when the unexpected happens.
Here are six key financial lessons to learn from the pandemic fallout:
1. Set and regularly review goals
Goal setting is a crucial part of financial planning and it becomes even more important when your lifestyle changes unexpectedly, as it has for many people since the onset of the pandemic.
New clients have reached out to us after life-changing events like losing a job, marriage break-down or changes to the success of their business. Even for those who may not have experienced a significant impact like these, changes to family living arrangements, income or travel plans have prompted a review of financial goals.
2. Adjust your budget when life changes
While media attention is rightly on those who’ve suffered job losses, some sectors and professions have done well in pandemic. For businesses that found their services in strong demand, or professionals who received an earnings boost during this time, the focus should be on investing, reducing debt or maximising super contributions.
For the many two-income families who have experienced reduced income or the loss of an entire income, it’s about reassessing spending, creating alternate revenue streams and increasing savings buffers for current or future rainy days.
3. Reconsider asset and debt strategies
Different assets absorbed the fallout from the pandemic at different times. The Australian share market dipped dramatically initially and then rebounded over six months in a V-shaped recovery, while the housing market took longer to slow and longer to rebound.
All asset classes are impacted by investing fundamentals, investor emotions and behaviours (fear and greed), macro-economic policies and targeted incentives designed to limit negative impacts. With so many factors to consider, holistic financial planning and good investment advice is critical.
4. Optimise your superannuation
One of the silver linings of career or lifestyle upheaval is it can afford the opportunity to step back and review how your superannuation is managed and invested to maximise your wealth in retirement.
A few things an FMD adviser will look for include: Is your super balance being actively managed for optimal investment outcomes? Are you taking advantage of all the tax incentives associated with superannuation? Superannuation is typically the most tax-effective way to build wealth, so it’s important not to miss any opportunities in this respect.
The rules change frequently, so having a good relationship with an adviser you can turn to for the most current advice is important.
5. Reassess your income protection and life insurance needs
Ensuring you have the right level of insurance to meet your needs is something that should be reassessed regularly, including when your life changes. On the one hand, for example, losing some family income makes it even important to protect the remaining income, but it can be less affordable at a time when premiums are already going up.
Premiums also tend to rise incrementally with age, so if you get to a point where the cost of insurances doesn’t make sense for the amount of debt and living costs you need to cover, it is worth reviewing your insurance needs with your adviser.
6. The importance of having an up-to-date Will in place
The onset of a pandemic where people can get very sick with a potentially life-threatening virus, certainly made the importance of having and update-to-date Will top of mind for many people.
Not to mention the appropriate Medical and Financial Powers of Attorney that enable loved ones to act on your behalf when you can’t make decisions about your own care and/or treatment.
If there’s a financial planning positive to come from the pandemic, it is that many more families now have these plans in place and are well-prepared should an accident, injury or illness unexpectedly strike.
If the last year has taught us anything, it’s that have no idea what lies around the corner, but we can plan for the future and put ourselves in the best possible position to prosper. If you have any questions about how you and your family can bounce back from COVID-19 upheaval, please contact your FMD Adviser.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977.