Financial Pitfalls to Avoid in a Crisis
In a crisis like the Covid-19 pandemic, most of us have two urgent priorities: protecting our health, and protecting our money. Budgeting is really important in a crisis, but when we’re scrambling to adjust to new circumstances, we don’t always make the right decisions. In hindsight, we might wish we’d done things differently.
There are several financial pitfalls that are easy to fall into at times like these. Here are a few to avoid:
Using your credit card
Cash flow is tight for many people right now. But leaning too heavily on your credit card means you can easily lose track of spending, and now is not the time to lose track! If you don’t have the cash flow to cover your repayments, then your purchases will cost you a fortune in interest down the track.
Buying with Afterpay and Zip
These buy-now-pay-later plans are just expensive ways to shop. Purchasing via these platforms actually costs you more now, and even more later, if you’re unable to pay at the required time. You’re better off shopping around for cheaper deals, and only buying what you can afford now.
Ordering Home Delivered Meals
I get it. This is convenient, it cheers you up, it avoids leaving the house, and it supports local restaurants. Many of us are on tighter budgets right now. Just make sure you are only buying what you can actually afford. Budget for it, and think about maybe doing this as an occasional treat, instead of a nightly routine.
Cancelling Your Insurances
Maybe you’re feeling that your insurance is a cost that hasn’t returned any benefit so far—so why keep it?!
Insurance is the safety net that you hope you’ll never need (let’s hope it stays that way!). The scope of insurance policies is extremely broad. Some insurance providers have recently made announcements regarding their response to COVID-19. If you’re unsure about what your policy covers, contact your provider or check their website to see what your insurer’s position is. But, in very general terms, if your insurance is health-related, then you should try to retain it. This is an area where you seek advice from your insurance broker or financial planner whichever is applicable.
Drawing on your super
This might sound tempting, but it’s one of your most expensive options. Don’t do it. Avoid it for as long as humanly possible. Drawing on your super in a market downturn is a sure way to lose your money. You’ll cement in the loss, which will cost you years of savings. Leaving your super alone is the most prudent action.
If you are considering drawing on your super, I urge you to seek professional advice before you act.
What are your options? Where to get help…
It really is worth looking for other possibilities and so check out these to get you start:
At the moment, there seems to be a new offer every day from the Government, and business, to help individuals, small businesses, and sole traders to get through this crisis. Find out what support is available to you before you take any of the actions I’ve listed above. These might seem like an immediate solution, but in the longer term, they’re avoidable pitfalls. Any of these decisions could end up costing you dearly, so take a moment, explore your options, and accept the assistance that is available.
[Note: I am not an accountant or financial planner. This article is intended to provide guidance, not financial advice. I don’t know your personal and financial position and so you must act responsibly for yourself. Do the maths and seek advice where you need to.]