5 Top Tips to Manage Personal Finances During Global Virus Crisis

Summary

  • Effective management of personal finance seems crucial for New Zealanders to secure financial stability during virus-driven uncertainty.
  • The NZ equity market can be a real epitome of a money plant if you escape panic selling and stay invested over the long run.
  • It appears imperative for individuals to set up a quality budget with an emergency fund covering 3-6 months of expenses.
  • Fund members need not join the rat race of early KiwiSaver access unless really necessary.
  • Individuals need to be cautious of some common mistakes while taking a loan.
  • One cannot overlook the importance of insurance in personal finance while planning for the future.

By disrupting normal lifestyle and scaling up job losses, COVID-19 has knocked down financial plans of several Kiwi Landers reeling from virus crisis. While Government and regulators are moving heaven and earth to ensure the survival of the nation’s economy, the pandemic calls for effective management of personal finances on the part of individuals to ride out the coronavirus storm.

With NZ’s return to lockdown restrictions amid a resurgence of coronavirus infections after 102-days long virus-free streak, managing personal finance seems crucial for New Zealanders to secure financial stability during virus-driven uncertainty.

Must Read! Five-Point Action Plan to Survive COVID-19 Storm

With that said, let us take a quick look at five key tips that can help Kiwis wade through prevailing turmoil and safeguard their financial future:

  1. Invest in Equity Market for the Long Haul

While global economic uncertainty cannot be overlooked in delineating sinusoidal equity market movements, the market can be a real epitome of a money plant if you escape panic selling and stay invested over the long run.

Looking at previous episodes of economic and financial downturns, there is considerable historical evidence that showcases recovery in the equity market over a longer timeframe. One classic example being the S&P/NZX 50 index, which tumbled by ~40 per cent between October 2007 and February 2009 amid the Global Financial Crisis, consequently recovering by over 70 per cent by April 2013. Further, the index skyrocketed by over 150 per cent by 2019 end.

The index is demonstrating a similar kind of recovery in current market turmoil wherein it plummeted by ~15 per cent in March 2020 quarter, subsequently gaining ~19 per cent growth since April 2020.

Thus, prudent portfolio decisions can help Kiwis reap benefits from market revival on the back of improving investors’ sentiments and gradual growth prospects.

At the time when fears of second infections wave continue to haunt New Zealand, investors can build a recession-proof portfolio, taking balanced exposure to virus-immune themes such as technology, healthcare and disruptive online stocks.

  1. Formulate Budget with an Emergency Fund

With several economists anticipating unemployment rate to soar to ~10 per cent later in 2020, it becomes imperative for individuals to set up a quality budget with an emergency fund covering 3-6 months of expenses.

While the NZ Government has stepped up with much-needed financial support by way of recent wage subsidy extension for another two weeks post 1st September 2020, the assistance is expected to be reduced later in 2020, making it more significant for individuals to set aside a rainy-day fund.

  1. Elope the Queue of Early KiwiSaver Withdrawals

Though the Government’s early KiwiSaver withdrawal option has enabled New Zealanders’ dip into their retirement savings amidst income crunch, fund members need not join the rat race of early KiwiSaver access unless really necessary.

As per recent statistics from Inland Revenue, the number of members who have withdrawn their KiwiSaver savings due to financial hardship rose to 1,620 in June 2020, in comparison to 1,280 in June 2019. Besides, the amount of KiwiSaver fund withdrawals amid financial hardship increased to NZD 11.8 million in June 2020, as against NZD 7.1 million in June 2019.

Instead of losing calm and making hasty decisions, fund members can stay invested in a low-fee quality KiwiSaver fund with a pertinent investment strategy to plan their retirement funds well in advance.

  1. Beware of Personal Loan Mistakes

While personal loan appears to be a viable option for Kiwis struggling to meet high-priority expenses in the near future, individuals need to be cautious of some common mistakes while taking a loan.

People need to avoid common mistakes, typically comprising conducting inadequate research on available loan options, neglecting credit ratings, application to several lenders at the same time, not reading the fine print of loan agreement, under-reporting existing debts and borrowing beyond repayment capacity.

  1. Remember, Insurance is More Important than Ever

With coronavirus pandemic unfurling as an unprecedented health and financial crisis event, one cannot overlook the importance of insurance in personal finance while planning for the future. In fact, insurance is no longer an option but a necessity in the new normal we all are setting into.

All in all, it appears to be the right time for individuals to review and realign their financial goals as per the current market situation while limiting expenditure on non-essential items. Undertaking decisive financial actions without panicking appears instrumental to navigate through these challenging times.

Comment


Disclaimer