Financially fit through COVID-19.

Hello everybody and welcome to our webinar, Financially fit through COVID19. My name’s Lisa Gissing and I will be your presenter for the next 20 to 25 minutes. Now before we begin today, I would like to first of all acknowledge the many traditional owners of the lands on which we meet and pay my respects to elders both past and present. Now there are many things challenging us at the moment due to COVID 19 which are causing us stress and anxiety.

You may have been juggling home schooling, your partner or loved ones may be on reduced income or even unemployed or you may have parents that have been in lock down or are still in lockdown and of course every news article or conversation seems to be about COVID 19.

And on top of all this you may also be concerned or struggling with your own money. You are not alone and there is help. So, in this webinar we are going to look at some tips and tricks that might help you manage your money at this time.

In this webinar we are going to look at the steps to help you manage your money now and into the future. We’ll take you through: • First of all, understanding your current financial position • Priortise your debt. • Develop a workable budget • Developing good spending habits to support your budget. • And saving to get the things you want out of life.

To understand your money or finances it is important to first understand where you are today. To understand your current financial position, we need to look at the money you have available and the easiest way to understand this is through the concept of ‘cash flow’.

Cash flow is a simple equation that says Cash-In, less Cash-Out, equals a surplus or deficit – or, as I like to say what’s left over. Cash-in is simply “where I get my money from”.

And there are a number of places that your money might come from. For many people the first obvious one is that you work for it by working for someone or perhaps you run your own business.

Investment income can be interest on a deposit or savings account or maybe dividends earned through the ownership of shares in companies like Westpac. Some people in certain circumstances are eligible for what we call ‘safety payments’.

Maybe you are a stay at home parent, or unable to find work, the government may provide a social security payment. And of course, there are additional COVID19 payments.

Alternatively, maybe you’ve been injured and now unable to continue your work. And If you have insurance to cover this, then you will have a stream of income from the insurance company.

‘Cash-in’ often only comes from one of these sources and is a very finite amount. Working out how much money we have, and where we get it from, is generally the easy bit.

The next step is to work out how much money is going out. There are lots of ways that we use our money to support our life. And we’ve got quite a few things here on the screen from housing, to transport, food and clothing, and so on.

How much you spend on these things will determine whether you end up with a surplus, or have money left over or a deficit where you may have had to borrow some money from somewhere else.

Knowing how much money is coming and how much money is going out, you’ll be able to work out how much is left over. The goal of course is to create a surplus and have money available to use.

One of the tools that we can use to help us understand what we spend our money on, is a money diary. Record every single cent you spend for let’s say one month and this will then give you a very clear picture of where you’re spending your money. And it’s really important here to be honest with yourself.

Because from here you can then make the decision as to whether this is how you want to spend or whether there is a better way that will help you to achieve your goals. Now any notebook will do but there is also a money diary that you can freely download from the Westpac Davidson Institute website.

Our Managing Money guide which is freely available for download on the Davidson Institute website has this spending worksheet. And this will help you group the expenses from your money diary into things like commitments, everyday spending, and occasional spending.

Just a word of caution here when you’re doing this. Just make sure that you’re working with numbers that are either all weekly, fortnightly or monthly.

When it comes to getting on top of debt, it’s important to get started sooner rather than later. The sooner you deal with your debts, the more you’ll feel in control. So, let’s have a look now at prioritising your debt.

Begin by listing all the people you owe money to, how much you owe, your current monthly repayments, and the interest rate. The next step is to prioritise your debts, according to interest rate. The loan with the highest interest rate is costing you the most, so repaying this one first helps to reduce your interest costs.

It’s a good idea to review and update your list every few months as the total amount of debt goes down and enjoy that feeling of accomplishment and being in control of your financial future.

When it comes to money basics, budgeting is a proven, simple and effective tool. Developing a budget for your situation is about making mindful decisions about how you’re going to use your money.

This budget planner is freely available again from the Davidson Institute website. When completing your budget be careful to ensure all amounts are recorded as either weekly, fortnightly or monthly.

Step one is your ‘Cash-in’ from your wages or wherever it comes from. Step two is your ‘Cash-out’ - starting with the money you want to save.

Then the money for your commitments to other people like loan repayments, phone plans and so on. Then all the money you need to live. Then the money you choose to spend to maintain a particular lifestyle.

Add up all these amounts up and subtract that from your cash in and you’ll end up with either a surplus or a deficit. As we said earlier, we’re aiming for a surplus. But if we do end up with a deficit, then you should be looking to do one of two things: either increase our income, which I know is not always easy or reduce your spending.

Remember, the great thing about this is that it is a plan - a picture if you like - and if you don’t like the picture that you’re painting, you have the opportunity to change it.

By taking the time to look at your spending and develop your budget, you can make the decision as to whether this is how you want to spend your money or whether there is a better way that will help you to achieve your money goals.

When we think of budgeting, we think of reducing our spending. In reality though, there is a certain amount we need to spend all the time simply to live. Then there are the things that we want, as opposed to the things that we need such as that nice piece of jewellery, a new pair of shoes, or the latest tech gadget.

So often we think of cutting back on the nice things that we want, but the reality is that buying a sandwich for lunch every day of the week could actually be the thing that is impacting your budget.

One of the biggest spending problems that can impact our ability to stick to a budget is spending leaks. Think of your budget like a boat - we know that one big hole in the middle of the boat will sink it!

That one big hole in your budget might be major car repairs, unexpected dental work, or even an unplanned trip away. Any of these things has the potential to sink our budget ‘boat’. But, what if we have a few tiny holes? Over time even those tiny holes will leak enough to cause us significant issues. We call these little holes - spending ‘leaks’.

When you think of ‘leaks’ in terms of your budget, think of the little things that you buy regularly that might only cost a few dollars here or there. It could be as simple as buying your lunch. Let’s say that you buy a sandwich and a drink for lunch. That would probably cost around $15.

For many people $15 isn’t really all that much and they probably wouldn’t even miss it from their wallet. But what if you did that every workday? If you work 5 days a week, it would cost you $75 a week. Over the course of a full year, that $15 a day adds up to $3,750. Think about what you could do with $3,750.

And this is just one little leak! Your money diary can help you identify your leaks just like the example we’re going to have a look at now.

Meet Leaky Luke. Luke lives in the suburbs and catches the bus into work every day. He’s always running late but doesn’t miss buying a coffee to give his day a kick start. When he gets off the bus, he buys a bottle of water to drink as he walks the rest of the way into work.

He never misses coffee at morning teatime -he loves a good takeaway latte. Because he’s always running late in the morning, he buys his lunch every day – which is normally a sandwich and a soft drink. After a long day at work he often orders takeaway on his way home for dinner at least 3 times a week costing him $45.

What is this actually costing Luke? Individually, each of these things is relatively cheap. A few dollars for coffee, few dollars for lunch … but weekly, those little bits and pieces add up to $215 for Luke. What is this actually costing Luke? Individually, each of these things is relatively cheap. A few dollars for coffee, few dollars for lunch … but weekly, those little bits and pieces add up to $215 for Luke.

Then there’s the monthly subscriptions he pays for a couple of streaming services, that he set up ages ago and has simply forgotten to cancel. When you add that into the mix … over a year, that adds up to over $11,000!

Does this scenario sound a little familiar to you? Don’t worry, we’ve all got our little leaks, including me. It’s not necessarily denying yourself these things. It’s about making the choice on whether you want to continue to spend your money in this way and building it into your budget, or whether you recognise that these leaks could be delaying you in achieving your goals and you decide to do something about it.

Let’s say Luke decides it’s time to make a few changes and get better organised. By getting up a little earlier each morning he can catch an earlier bus … one that doesn’t charge peak hour prices. He would also have time to make his lunch most days and have a coffee at home before he leaves.

He does enjoy his coffee catch-ups and is happy to buy his lunch once a week, but now drinks tap water from his reusable bottle. The lure of saving enough for another overseas trip when we can travel again sees him cut back his home food deliveries to once a week and is enjoying cooking new recipes at home.

And he’s cancelled the subscriptions he’s no longer using but decides to keep just one pay television subscription. Not huge changes for Luke, but significant ones for his budget! Instead of his leaks costing him more than $11,000 a year, these little regular spends are only now costing him just over $4,000 a year.

That’s a saving of $7,140!! And what could Luke do with an extra $7,140? You know what forget Luke, what could you do with an extra $7,140 each year? Luke’s example is a simple one but a common one.

Your daily expenses may look slightly different, but consider this – do you really know how much it’s costing you? And more importantly, would you continue with that cost knowing that it could mean the difference between achieving your goals or not?

So, fixing our spending leaks is one way of getting our money into better shape. Here are a few more good spending habits: Don’t spend more than you earn! Sounds obvious, doesn’t it? However, it’s an easy trap to fall into using things like credit cards. How do we avoid it? By planning well, being aware of cash flow, and developing good spending habits.

Recognising Wants vs Needs: Much of our spending isn’t necessary. Think of the list of all the different things that you want right now. Now think about some of the things you put on that list and ask yourself, “Do I really need it?”

Now, I’m not saying don’t buy the things you want, but do make an informed choice. Ask yourself “If I buy this thing that I want now, what else might I be missing out on?”

Defer spending: We often buy on impulse but if we can defer the purchase for few days or even a few hours the urge often goes away. Some people do things like leave their credit card at home so they can only spend the cash they have on them. Or make the decision over a cup of coffee instead of on the spot.

Avoid emotional spending! A lot of impulse buying is emotional spending. This is simply where you let any emotion override your careful plans. If you’re tempted to make an emotional purchase, ask yourself “Is it really going to make you feel better in the long run? How will it affect the goals I’m looking to achieve? “

Use your credit card wisely. Credit cards are a great tool but only if they are used well. Remember each purchase you make will potentially cost you more. Aim to ensure you use any interest-free period you have and clear the card in full each month.

Value of Money: This is when you have to understand the value of what it is that you are buying. Some of those “great deals” you see advertised - if you break them down - sometimes don’t stack up at all. Do your research and make sure you are getting value for your money.

Our cost cutting checklist again freely available for download from the Davidson Institute website covers lots of handy money saving tips to consider in areas such as housing costs, lifestyle costs, finances, food budget, health and education. And it will help you to review your costs during this time.

A lot of people also find it useful to use a planner like this one in our Managing Money Guide. List key dates for money coming in like pay day as well as key dates when money will be paid out. And these could include expenses like rent or special events like Mother’s Day or birthdays.

Again, painting a picture – remember if you don’t like it, now is the opportunity to look at changing things where you can.

Ultimately, the purpose of developing good spending habits is to put yourself in a position where you can save for the future. It might be saving for a holiday, a wedding, a baby or even retirement. Saving is about our future spending rather than our ‘now’ spending.

Like spending, there are some good habits we can develop that will help us to save more effectively. A good habit to get into is to allocate savings as part of your budget before you allocate spending money!

Think about it as paying yourself first. So, how much should you pay yourself? A good guide is about 10% of your total income. Now I know that this isn’t always possible but even if you start small, start now!

Even small amounts add up for you over time as we saw with Leaky Luke earlier. If you get into the habit of doing it, then it becomes less noticeable to the point where you don’t even miss it. Don’t make your savings goals too difficult.

If you say you want to save $100 a week, but then find that you have to continually dip into your savings for everyday spending, you will only become disheartened. Start with a challenging but manageable goal and if you have money left over, then add that to your savings as well. Build up to higher savings targets over time.

Finally – keep your savings separate to your spending money. If it’s tucked away, out of reach, potentially earning more money, you’ll see your savings grow over time … giving you options and choices in the future.

Like your good spending habits, good saving habits will help you to achieve those dreams and goals.

And like your goals, when it comes to savings, there are 3 levels or tiers that you should consider. Short term savings, that helps with things like medical expenses or car repairs. Medium term savings. These are for three to five-year goals such as maybe saving for a car, or even a house deposit.

Finally, there are long term savings, such as saving for retirement. These savings will often be in the form of investments - things such as superannuation, shares, or purchasing investment properties. By allocating your savings to short, medium, or long-term goals you’ll effectively be covering all bases for the future.

Here’s a great simple template that can be used to help you be clear about what it is that you’re saving for. Again, it can be found in the Managing Money guide on the Davidson Institute website As you can see on the screen. First of all, describe the goal. In this case a car deposit. When do you want to achieve this goal by? In this case October.

What is the value of the goal? $2,000. How much do you have today to put towards the goal? As you can see on the screen, $200. The gap is then the difference between how much you need and the amount of money you have available today, and in this case, $1,800.

How long have you got to save up? As you can see the target date on the screen is 6 months. So, if you got paid every fortnight and with the information on the screen you would need to save $150 from every pay to put towards this goal.

It’s really important to remember to keep it achievable and realistic. If you find it too much of a stretch maybe push the target date out or have a look at your budget for other ways you could potentially save more or cut costs?

So, in this webinar we’ve had a look at. Understanding your current financial position. Priortising your debt. Developing a workable budget. Developing good spending habits to support your budget. And saving to get the things that you want out of life.

I really encourage you now to review your own situation and take charge of your money during these uncertain times by implementing the handy hints that we’ve discussed today. Download the Managing Money booklet and Money Diary from the Davidson Institute website. Get your friends and family to do the same.

The Davidson Institute is an online platform designed to help build Australians’ financial confidence. It’s a platform to engage, educate and encourage positive financial behavioural change for all Australians. So be sure to check out …

Our Financial Fitness Course where you can select the topics that you’re interested in. Learning more about everything from tax and credit scores through to starting a business, borrowing money and steps to buying your first home.

Also, the Financial Jargon Buster mini film series. These short films focus on topics that people have told us they’re keen to learn about like superannuation and compound interest.

In closing, let me thank you for joining us for our recorded webinar, Financially fit through COVID19. We trust you found the information useful and relevant and I encourage you to check out the other resources on the Davidson Institute website to help build your financial confidence. Thanks again and we wish you every success with your budgeting and enjoy the rest of your day.