By Nick Gardner | September 01, 2008

Take steps to make sure you could survive if you lost your job
Work out a budget and build up an emergency fund

BATTEN down the hatches. Australia could be heading for recession and that means tough times ahead.

The Reserve Bank (RBA) is forecasting 100,000 jobs to vanish in Australia in the next 12 months, taking unemployment to more than five per cent.

New South Wales is set to be hard hit because it relies on “service” sectors, such as retail and financial services, which traditionally get hammered in a recession. States like Queensland and Western Australia have mining to help prop up the finances.

Savanth Sebastian, Commsec economist, says: “The worst-affected will be Victoria and NSW, where there are big retail sectors. We recently saw the worst retail sales data in 12 years and it’s the country’s biggest employer, so it doesn’t look good.

Plan ahead: Work out a personal budget
Rainy day: Put aside an emergency savings fund”The RBA’s goal was to slow the economy gently, but with data looking so bleak, it looks like we could be heading for a hard landing — particularly in retail which, with two quarters of negative growth behind it, is already technically in recession.”

If the worst should happen and you lose your job, it is important to choose the right redundancy package.

Paul Bilson, of Woodwood Nhill Financial Planning, said: “See a planner, as the tax differences in the choices can be significant. The maximum tax-free portion of any redundancy payout is $7350, plus $3676 for each completed year of service. So, if you had 10 years of service, you’d be entitled to $44,110 tax-free. Anything above that would be taxable.”

By placing redundancy funds into superannuation, you may save tax; but, if you are under 55, you cannot access the funds, which is obviously not ideal if you will need the money for shorter-term purposes, such as mortgage repayments.

It is advisable to keep money free until you have found another job. Remember, however, that you may be entitled to extra payments in the redundancy package, such as long service leave and holidays.

Mr Bilson says: “A good place to hold the funds is in the redraw facility of your home loan. It is decreasing the term of the loan and saving you interest, while still being accessible as needed”.

If you are approaching retirement, superannuation may become accessible, which may help to meet income needs. But some staff super plans will not allow you to keep the super with the company once you leave, so you may have to roll it over into another fund or the company super fund might send it to a different fund — and that means you could lose any insurance you have through the existing super scheme.

You might also be entitled to Centrelink benefits, but there is usually a waiting period, which is assessed on how much holiday you are entitled to.

So, if the storm clouds are gathering, what can you do to protect yourself?

Here we run through some handy tips for coping with an economic slowdown.

Build an emergency fund

The most essential weapon in your armoury against hard times. Start saving. Even a few bucks a month into a savings account will mount up surprisingly quickly. Set up a direct debit from your transaction account so its taken straight from your take-home pay each month and hopefully you will not notice it too much.

Pay off high interest debts

Credit cards and personal loans are an expensive liability, with rates averaging almost 20 per cent. If you cannot afford to clear the debt, switch to a card with a lower rate of interest.

Some cards have zero per cent balance transfer deals and you can often switch from card to card for a long period, extending the time you pay no interest, which in turn makes your repayments go further. Try and clear the card in this time.

Also, try asking your bank for a lower rate. You would be surprised at how often this works. Or, when you apply for a zero-rate card from another bank, ask your own bank to match or beat the zero per cent period. When they realise you are serious about leaving, they listen — and they’re often prepared to bargain.

Set a budget

By noting down your income and outgoings each month, it is much easier to see areas where you could cut back and use that money to pay down your debts.

Get insurance through super

While you might not be able to insure your mortgage repayments against losing your job, you can — and should — protect them against accident or sickness preventing you from working.

And while there are policies available on the open market, there are often policies available through your super fund at a significantly reduced price.

Check with your super fund manager for details and switch policies, if necessary, to get insurance.

Reduce your mortgage

This is most people’s biggest expense and biggest worry.

If you can build up a fund — maybe an offset account against the mortgage — it can buy you valuable time, allowing you to take “payment holidays” and skip a few months’ payments, until you get back on your feet.

It’s a crucial buffer to build into your finances. In addition, any money you have set against your mortgage is earning the best rate of interest, tax-free.

That’s because you are saving interest on the offset account balance at the same rate as the mortgage rate. Based on a rate of 9.5 per cent, that is equivalent to a gross return of about 12 per cent for a basic rate taxpayer.

Don’t buy whitegoods

It’s s classic pre-recession advice. Don’t go buying big consumer items because, when the economic downturn hits — as it already is — retailers become more desperate for business and are prepared to bargain.

But you have to be brave, throw aside any coyness and be prepared to ask for daring discounts.

If you don’t get what you want, shop around. Remember, retailers of all kinds have big margins to play with, so the right shop will give you a big discount. Playing one off against the other is a good tactic.

Sell your property

If  you’re looking to move, but have been holding out for a better price, be realistic and take a reasonable offer and move on.

Property prices never fare well in economic downturns because fewer people can afford the costs involved in moving and decorating.

Property prices have already shown signs that they are moving downwards and have been edging down in southern and western Sydney for some time. But the pace and scale of the falls will be much more severe, the worse the downturn becomes.

Across Sydney, prices are just about holding up, but experts say prices could fall by an average of 10 per cent or more in the next year, with the most bearish pundits predicting property price falls of 30 per cent, if recession bites.

So move now and make the most of cheaper furniture and whitegoods in the shops next year.

Some of the articles that have been posted to the site effectively preach ‘DRAMA’. It’s not like we don’t already know what is going on! Drama is ok in a newspaper but it doesn’t get the job done for the everyday Joe!

The way to overcome financial dome & gloom is to have a goal, and a plan to achieve it. Most importantly make a habit of it!

There is an opportunity coming over the next 6-10 weeks for some- TAX REFUNDS! – Yeah!  With the new financial year upon us perhaps there are a few New Financial Year resolutions we could put into our physcie?

A key component to all this is to understand your cash flow. What comes in & what to go out, more importantly when it has to go out. Budgeting becomes an important part of this.

Budgeting needs to be thorough. It has to include annual needs like House insurance, cars through to white good replacements and alike. There are several software packages available which can assist in this area. And if you would like to be pointed in a direction I can suggest you contact me & I would be more than happy to assist. However budgeting is only the start of the process.

Once you have an idea on how and what monies are available you can start to build on a strategy to get yourself in order or ahead. It might be to make sure you have got Xmas & school holidays covered.

Then you need to make sure you have automatic payments organized where practical. So that you can’t forget to make payments. Have them set up around you pay cycle.

However if the numbers don’t add up and there is more going out than coming in, (not just now but perhaps in the next month or two) then there are a few different strategies that can be opted for. Some involve insolvency processes, not all do & there are approaches which help re-engineer debt and reduce repayments for the longer term.

In a lot of instances, it will not be just one approach that will help you through these tougher times but a combination.

By Peter Jean and Ben Packham – Courier Mail

June 11, 2008 08:44am

• Demand for home loans has slumped in the wake of high rates
• Economist tipping property will be depressed for rest of year
• In-depth: The latest interest rates news and features

DEMAND for home loans is crumbling as would-be buyers are scared away by high interest rates.

Economists predicted yesterday that the property market would remain sluggish for the rest of the year.

The number of loans taken out for owner-occupied homes in Australia fell by 3 per cent in April, to a seasonably adjusted 57,503, Australian Bureau of Statistics figures showed.

It was the third month in a row that home loans fell across the nation.

Economists had forecast a 1.9 per cent fall for the month.

The slump suggests interest rates and soaring fuel prices have caused a serious slowing of the economy.

“Consumers are being battered from all sides,” Comm-Sec chief economist Craig James said.

“It’s not just the Reserve Bank lifting rates, it’s the fact that individual banks have been forced to lift rates, the cost of petrol has been going up, food is going up. It’s all putting pressure on people’s budgets.”

Mr James said the figures were “super-weak”, capping the biggest slump on record.

“This isn’t just another modest drop. This has been the third significant fall in home lending,” he said.

“We’ve had something like an 18.4 per cent fall in new home loan lending in the past three months.

“We haven’t seen a decline like that ever before.”

He said the slump would have a serious impact on the supply of homes, given rising immigration levels.

On the up side, Mr James said there was now little chance of an interest-rate rise before the end of the year.

“The Reserve Bank certainly doesn’t need to be following up with any further interest rate action at this time,” he said.

“The economy has already responded, slowing down significantly.”

Macquarie Group senior economist Brian Redican said the high interest rates would keep stifling the depressed housing market.

“There’s certainly no sign of a turnaround in the housing market, probably for 2008,” Mr Redican said.

“Until we start to see interest rates fall, and that certainly seems a long way away at the moment . . . all the risk remains on the downside.”

Housing Industry Association chief economist Harley Dale said though the property market was subdued, there was still a shortage of homes for sale and available for rent.

“HIA has maintained for some times that Australia needs to produce 175,000 to 180,000 new residential dwellings a year to meet current and anticipated demand,” Mr Dale said.

Everybody talks about budgeting, the real challenge is making it a habit, so that when your time or something gets in the way of you doing the budgeting regularly you will get back to it in a timely fashion.

When it comes to managing cashflow for bills, savings, playing and alike the “ I want’s and the I need’ can get in mixed up and our priority’s are misplaced.

There are some handy tools to be had from the internet and they don’t always cost.

In managing your money it pays to account for 1) all the aspects of your lifestyle and 2) know when these commitments are needed to be paid or met.

In looking forward you can then as certain when you may be a bit short & can take action to overcome at the appropriate time.

Finance know how has several systems, strategies and professionals who can assist in help you to achieve a better balance in your finance handling.

Do you have multiple credit cards you can’t make repayments on, is your mortgage costing you too much money, has your employment situation changed lately? It’s hard to sometimes maintain repayments when situations change.  Veda Advantage reported in November 2007 that:

Four in five Australians in debt now worry about their ability to make repayments over the next 12 months, according to a new Veda Advantage study. The study also found close to 2 million Australians admit finding it difficult to make repayments or they are unsure how they will make their next repayment – raising concerns about a new debt divide between Australians who are struggling and those who are still managing to meet their financial obligations.

There are solutions for this, best thing to do is not allow it to get worse and contact a Finance Broker who can help you with your problems. Finance Know How has experienced brokers that Know How!