Six ways to future-proof your money against the recession
Federal Treasurer Josh Frydenberg has declared Australia is in a recession, almost three months before official data will show it.
So what does it all mean, and what should you do?
WHAT IS A RECESSION?
The technical definition of a recession is two quarters - six months - of an economy going backwards. Yesterday's figures showing a 0.3 per cent contraction in the quarter ending March 31 is the first leg of that.
The second quarter, April 1 to June 30, is when the coronavirus shutdown hit the hardest, and economists expect the economic contraction in this current quarter to be around 8 per cent. Official June quarter data, due in September, will confirm their forecasts.
IS IT UNUSUAL?
For Australians, yes. It's been 29 years since we last experienced a recession, although many countries around the world have had several since then.
We escaped recession by the skin of our teeth during the global financial crisis when we didn't have two consecutive quarters of negative economic growth.
WHAT DOES IT MEAN FOR MY JOB?
If you're fortunate enough to still have a job - and are working the hours you need - amid the COVID-19 collapse, you may not feel too much financial pain.
It's been said that people with jobs during a recession do better than when there's no recession, because interest rate will be much lower to try to kickstart the economy, and government stimulus cash will be flowing to households - as it is right now.
WHAT ABOUT MY MORTGAGE?
Expect low interest rates to last for a long time, recession or not. The Reserve Bank has signalled it's in no rush to raise the official interest rate from the current record low 0.25 per cent. It unlikely home loan interest rates will go much lower, so make the most of the situation by pumping in all the extra mortgage repayments you can.
WHAT DO I DO ABOUT INVESTMENTS?
The share market is always forward looking, which helps explain the recent spike in share prices in Australia and several overseas markets. Professional investors are already looking a year down the track and see bluer skies.
However, some analysts warn that there are more big market downturns ahead because of the damage COVID-19 is doing to the global economy.
If you're a long-term investor, most financial experts recommend sitting tight in times of turbulence and sticking to your plan.
WHAT DO I DO ABOUT SUPER?
Superannuation is a longer-term investment than anything else for most people, so it's really a case of maintaining your strategy.
There's a chance we may have already seen the worst of the COVID-19 impact on super fund balances. Unless you believe the doomsayers, of course.
Former Prime Minister and Treasurer Paul Keating said during the last recession in 1991 that it was "the recession we had to have".
Given what's going on around the globe right now, this is the recession we couldn't avoid.
WHAT CAN I DO RIGHT NOW?
Tough economic times are a reminder for people to revisit their finances and future-proof where possible.
1. Go through your bank account and credit card statements and write down everything you've spent in the past three or six months - it's the best way to find wastage and spot potential savings.
2. Separate your spending into needs and wants and seriously consider whether those wants are worth continuing.
3. Check the interest rate you are paying on all debts, especially the mortgage. If you haven't done lately you could be wasting thousands of dollars by not requesting a better deal.
4. Go through all bills including energy, insurance and phone/internet. Competition among providers is fierce, and big discounts are offered to people who switch.
5. If you are worried about debts or other money issues, speak with a free financial counsellor by phoning 1800 007 007.
6. The Federal Government's superannuation early release scheme can be a financial lifeline, but only use it if absolutely necessary because withdrawing the money now can hurt you later in life.
Originally published as Six ways to future-proof your money against the recession