SYDNEY, Australia – Economists believe that Australian’s are halfway to a recession, mainly driven by the downward spiral of the stock market for three consecutive weeks, among others.
Because of the current economic issues in Australia, including the coronavirus outbreak and the rising unemployment rate, many economists believe that the country is heading towards a recession.
They consider two successive quarters with negative Gross Domestic Product (GDP) growth as a “technical” recession. And for Australia, the last one was 28 years ago. It was long before the country started its economic expansion that is among the best growth in the world.
Recently, the Prime Minister of Australia, Scott Morrison, decided to put forth a stimulus package worth around $17.6 billion. The asset that the federal government will provide hopes to boost the economy of the country and along its mission to prevent another future recession desperately.
But during an overall uncertain economic time, a lot of Australians are worrying about the best way to shore up their savings accounts and finances.
Fortunately, some financial planning experts share their expertise to help Australians to protect their finances better.
The director of the Elevate Wealth Solutions, Mathew Hawkin, said that Aussies could find out their unique level or number to make sure that they are living within their financial capacity whenever there is a recession.
This unique number determines how much a person or a household needs to consider for necessary living costs, including food, water, and electricity. It doesn’t include any frivolous expenses such as holidays or purchasing a new car.
After establishing that number, according to Mr. Hawkins, Australian people can create long-term plans based on that. It will help them avoid a time of economic downturn as well as figure out the indisposable finances they have in their savings accounts or their income.
Mr. Hawkins added that by using resources like budget calculators, Australians could put all their expenses in a single platform. It will also help them understand the least amount they need to subsist.
Marc Bineham, the managing director of the Noall & Co, thinks that Australians should set aside funds for their savings account to serve as a safety net. It can help them minimize any financial difficulties if they do happen to lose their job.
According to Mr. Bineham, the average Aussie accounts for less than one month of savings compared to their incomes.
When the worst thing happens, he said, Australians will only have a month’s worth of savings that they can use. According to him, this amount is not nearly enough to get them out of financial trouble. Mr. Bineham said that the ideal funds in a savings account for a rainy day for Australians should be around three to six months worth of their incomes.
Meanwhile, from the survey conducted by AMPD Research, an average Australian household sheds $35 every month for paying their subscription video-on-demand services. Another research in 2018 also suggests that users of UberEats have average spending of $1590 on the service every year.
According to Mr. Hawkins, one of the struggles for Australians is the lack of comprehension of how much of their income goes toward the direct debit services they use. That is until they start printing out all of their bank statements, he said.
Mr. Hawkins said that every luxury item they spend money on, including Netflix, Spotify, and Stan, among others, adds up in their expenses.
According to him, some of the best ways that Australians can save money is by reducing their overall expenses. That also includes shopping around to find the best rates for their loans, the better cost for their contents and home insurance, and a better price on their health insurance as well.
He said that even little changes in the spending habits could accumulate and compound, and in the end, they will have more significant savings over 12 months.
During the last recession in the country, the unemployment number rose to double-digit. There was also an increasing reliance on the workforce casualization and gig economy, which can lead to more unemployment for Australians.
Fiona Guthrie, CEO of Financial Counselling Australia, said during an interview that Australians who are becoming unemployed should start talking to both their financial counselors and creditors or banks, sooner rather than later.
Creditors and lenders come with a legal obligation to offer individuals a provision during times of financial hardship, Ms. Guthrie said.
She further stated that Australians could also ask for their help and advice through their helpline. They can offer financial counseling and guidance on what not to do because she said that it is easy for individuals to get a high-cost short-term payday loan or purchase through BNPL services.
According to her, these ways can lead to Australians in a financial disaster and might even trap them into going in debt.
Meanwhile, Australia is currently experiencing a bear market despite the dramatic trading session for the ASX 200 on Friday, which saw a 4.4% increase. Right now, the country is 20% lower from its previous high on February 20.
However, a lot of investment advisors are saying that Aussie investors should continue getting their feet into the market and focus on the long-term profit.
Kate McCallum, the director at Multiforte, said that the stock market plays as the intersection of emotion and economics. But right now, the sentiment is the one driving the fortunes in the market, she said.
Ms. McCallum added that markets are, unfortunately, unpredictable, which makes sense that investors are waiting for it to be more comfortable before reinvesting.
However, she further stated that the price Australian investors need to pay for certainty comes with meager returns. So, according to her, if market players want to experience the much bigger profits that the capital markets can provide long-term, they have to start investing and weather the storm.
She further stated that upticks in the stock market could happen overnight. Ms. McCallum took the downturn on Thursday as a great example that uptrends in the market can arrive as quickly as the decline. She said that if investors sit in their cash and wait out for much calmer waters, they might miss that sudden uptick, and the chance goes out the window.