How to financially prepare yourself for possible unemployment

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on May 01, 2020
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How to financially prepare yourself for possible unemployment

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Coronavirus has resulted in many job losses and according to projections by the Grattan Institute, nearly a quarter of Aussie workers could be out of work in the coming weeks. Here’s how to prepare yourself financially for possible unemployment.

Here’s how to prepare yourself financially if you’re facing an extended period of time without pay, a pay cut, or even unemployment.

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We may be flattening the infection curve, but job losses are still rising as many businesses struggle to survive in this new COVID-19 world.

With a recession looming, unemployment could rise to 15% according to the Grattan Institute - the highest unemployment figure since the Great Depression.

Anecdotally, I’ve heard many stories of people in my personal life who have had to take significant pay cuts or are facing the possibility of having to take leave without pay as their company tries to keep its head above water.

Check your spending

Regularly reviewing your spending habits is something you should always be doing, worldwide pandemic or not. But in these uncertain economic times, it’s even more important to get your spending under control - particularly if you’re facing the possibility of unemployment or have recently taken a pay cut.

If you’re now working from home, you’re probably spending less money on transportation to and from work but you might be spending more money online shopping or on takeaway food while you’re stuck in iso. Take a look at what you’re spending on and see if there are any areas where you can cut back.

It’s always a good idea to check your bank statements and see if you have any recurring payments coming out for services that you’ve forgotten to cancel.

Set up an emergency fund

If you haven’t already got an emergency fund, this is the time to make one.

Ideally, an emergency fund should have enough to cover between three to six months' worth of expenses because this is usually how long it takes most people to find a new job, according to Seek.

You should take a look at how much money you would need to cover your rent, bills, groceries and other essential expenses if you were to lose your job or take a big pay cut. What this will look like will be different for everyone. For some people, a few thousand dollars may be enough to happily survive on, but others may need a far bigger amount to feel comfortable with.

For those who already have an emergency fund, you may want to continue topping it up while you have income coming in so there’s plenty to cover you if your situation suddenly changes.

Maximise your savings

Interest rates on savings accounts are pretty low at the moment, thanks to all the recent rate cuts, but there are still some savings accounts on the market with decent rates if you look hard enough.

Need somewhere to store cash and earn interest? The table below features introductory savings accounts with some of the highest interest rates on the market.

Lender

4000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

Online Saver (Amounts < $499999)

    02000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

    PremiumSaver (Amounts < $250k)

      3000$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

      Serious Saver (<$1m)

        0100$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

        mySaver < $50k

          4001$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]More details

          WebSavings Account (New Customer) ($2,000+)

            Rates based on a savings balance of $10,000. Sorted by total interest rate. Refer to providers' websites for bonus rate conditions. Note that the base rate will apply once the introductory term has passed. Rates correct as of June 27, 2022. View disclaimer.

            Alternatively, fixed interest rates on some term deposits are actually going up in response to the coronavirus crisis and the economic shockwave that has followed.

            This presents an opportunity for savers to lock away their money at a decent rate for a period of at least six months.

            Want to earn a fixed interest rate on your cash? The table below features term deposits with some of the highest interest rates on the market for a six-month term.  

            Lender

            At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]5000$product[$field["value"]]$product[$field["value"]]More details

            Term Deposit - 6 months

              Annually$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]100031$product[$field["value"]]$product[$field["value"]]More details

              Personal Term Deposit - 6 months (Annually)

                At Maturity, Annually$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]1000031$product[$field["value"]]$product[$field["value"]]More details

                Term Deposit - 6 months ($10k-$250k)

                  Annually, At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]100031$product[$field["value"]]$product[$field["value"]]More details

                  Edvest Term Deposit I20 ($1000-$499999) - 6 months

                    Annually, At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]100031$product[$field["value"]]$product[$field["value"]]More details

                    Term Deposit I10 ($1000-$499999) - 6 months

                      Annually, At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]250000$product[$field["value"]]$product[$field["value"]]More details

                      Term Deposit ($250k+) - 6 Months

                        Annually, At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]100031$product[$field["value"]]$product[$field["value"]]More details

                        Term Deposit (> $1000) - 6 months

                          Annually, At Maturity$product[$field["value"]]$product[$field["value"]]$product[$field["value"]]1000031$product[$field["value"]]$product[$field["value"]]More details
                          FLEXIBLE INTEREST AND REPAYMENT TERMS
                          • Interest can be paid to other institution
                          • Automatic maturity rollover
                          • Early Withdrawal Available
                          FLEXIBLE INTEREST AND REPAYMENT TERMS

                          Term Deposit (<$1m) - 6 months

                          • Interest can be paid to other institution
                          • Automatic maturity rollover
                          • Early Withdrawal Available

                          Rates based on a $50,000 deposit for 6 months. Rates correct as of June 27, 2022. View disclaimer.

                          Read: Banks which are offering special term deposit rates during coronavirus

                          Refinance your home loan

                          Haven’t given your home loan much thought since you initially took it out? It’s time to change that.

                          If your home loan interest rate doesn’t start with a 2 or a 3, get on the phone to your bank and ask for a better rate. If they’re not willing to budge, start comparing home loans to see what better deals are out there that you’re potentially missing out on.

                          To demonstrate how much money you could save by switching to a cheaper rate, let’s take a look at someone with a $400,000 home loan with a 30-year term making principal and interest (P&I) repayments.

                          After two years of being on a 4.00% p.a. interest rate, the interest rate was dropped to 3.50% p.a. and the minimum monthly repayment amount dropped accordingly.

                          Interest rate

                          Monthly repayments

                          Monthly repayment reduction (from 4.00% p.a.)

                          4.00% p.a.

                          $1,910

                          N/A

                          3.50% p.a. (after two years of paying 4.00% p.a.)

                          $1,802

                          $108

                          This amounts to a saving of $108 per month which may not sound like much, but over the course of one year that amounts to an extra $1,296 which could be put towards your savings.

                          You could save even more over the life of the loan by keeping your repayments at $1,910 despite the lower interest rate. This could see you pay off the loan years earlier and save thousands in interest.

                          These days, many home loan interest rates are even lower than 3.50% p.a. thanks to the last five interest rate cuts from the Reserve Bank since June 2019. Some lenders are even offering fixed home loans in the low 2% p.a. range so it’s really worth shopping around for a competitive rate.

                          If you’re unhappy with your current home loan rate and want to refinance, check out some of the lowest rate variable home loans for owner-occupiers in the table below.

                          Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers. 

                          Lender

                          Variable
                          More details
                          UNLIMITED REDRAWSSPECIAL OFFER
                          • Fast turnaround times, can meet 30-day settlement
                          • For purchase and refinance, min 20% deposit
                          • No ongoing or monthly fees, add offset for 0.10%
                          UNLIMITED REDRAWSSPECIAL OFFER

                          Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

                          • Fast turnaround times, can meet 30-day settlement
                          • For purchase and refinance, min 20% deposit
                          • No ongoing or monthly fees, add offset for 0.10%
                          Variable
                          More details
                          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
                          • No upfront or ongoing fees
                          • 100% full offset account
                          • Extra repayments + redraw services
                          100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

                          Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

                          • No upfront or ongoing fees
                          • 100% full offset account
                          • Extra repayments + redraw services
                          Variable
                          More details
                          ZERO APPLICATION FEESFEE FREE OFFSET
                          • We lower your rate based off how much you’ve paid down your loan
                          • Automatic rate match
                          • No upfront or ongoing fees
                          • The shorter your loan, the less interest you pay in the long run.
                          ZERO APPLICATION FEESFEE FREE OFFSET

                          Owner Occupier Accelerates - Celebrate (LVR < 60%) (Principal and Interest)

                          • We lower your rate based off how much you’ve paid down your loan
                          • Automatic rate match
                          • No upfront or ongoing fees
                          • The shorter your loan, the less interest you pay in the long run.
                          Variable
                          More details
                          AN EASY DIGITAL APPLICATION
                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          AN EASY DIGITAL APPLICATION

                          Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          Variable
                          More details
                          NO APPLICATION FEES
                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          NO APPLICATION FEES

                          Yard Home Loan (Principal and Interest) (LVR < 80%)

                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          Variable
                          More details
                          NO UPFRONT OR ONGOING FEES
                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          NO UPFRONT OR ONGOING FEES

                          Owner Occupier Accelerates - Evaporate (LVR 60%-70%) (Principal and Interest)

                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          Variable
                          More details
                          NO UPFRONT OR ONGOING FEES
                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          NO UPFRONT OR ONGOING FEES

                          Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 80%)

                          • No ongoing fees - None!
                          • Unlimited additional repayments
                          • Easy online application, find out if you're approved quick!
                          • Redraw- Access your additional payments if you need them
                          • Use the app to get loan insights to help you pay off your home loan faster
                          Variable
                          More details
                          UNLIMITED EXTRA REPAYMENTS
                          UNLIMITED EXTRA REPAYMENTS

                          Basic Home Loan (Principal and Interest) (LVR < 60%)

                            Variable
                            More details
                            EASY DIGITAL APPLICATION
                            EASY DIGITAL APPLICATION

                            Neat Variable Home Loan (Principal and Interest) (LVR 70%-80%)

                              Variable
                              More details
                              $0 APPLICATION FEE
                              $0 APPLICATION FEE

                              Budget Home Loan (Principal and Interest) (LVR < 80%)

                                Variable
                                More details
                                100% FULL OFFSET ACCOUNT
                                100% FULL OFFSET ACCOUNT

                                Offset Package Home Loan (Principal and Interest) (LVR < 60%)

                                  Variable
                                  More details
                                  LIMITED TIME OFFER
                                  • Fast turnaround times, can meet 30-day settlement
                                  • No ongoing or monthly fees, add offset for 0.10%
                                  • Extra repayments + redraw services
                                  LIMITED TIME OFFER

                                  Smart Booster Home Loan Discounted Variable - 1yr

                                  • Fast turnaround times, can meet 30-day settlement
                                  • No ongoing or monthly fees, add offset for 0.10%
                                  • Extra repayments + redraw services

                                  Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of June 27, 2022. View disclaimer.

                                  It doesn’t always pay to be loyal - sticking with the same lender could cost you an extra $1,000 in higher interest payments per year.

                                  Save on your essentials

                                  As most of us are now spending more time at home (thanks, national lockdowns!) there’s almost no excuse not to look for better deals on your essential bills, like your home, car or health insurance, electricity bill, and phone or internet plans.

                                  Because most of us are also working from home, our energy bills are expected to rise. Here are some tips on how to make your home more energy-efficient.

                                  Take advantage of coronavirus financial support schemes

                                  If things are really dire, there have been many stimulus support payments announced to assist people struggling financially as a result of the coronavirus. If the company you work for has experienced a drop in revenue of at least 30% you may be eligible to receive the JobKeeper payment.

                                  You could also defer your mortgage repayments as many of the big and small banks are allowing customers to defer their loan repayments for up to six months during the crisis. Just keep in mind that deferring your mortgage repayments simply kicks the payments further down the road and will increase your repayments and the overall amount of your loan because interest is still accruing in the background.

                                  If you’re a credit card user, you may also be eligible for some financial support. Some banks are allowing their customers to defer repayments for credit cards and personal loans, while Commonwealth Bank says it hasn’t ruled out lowering interest rates on credit cards.

                                  Many health insurers are also delaying premium increases until later in the year as a result of the virus while some car insurers are offering policy discounts.

                                  Savings.com.au’s two cents

                                  The sucker punch of coronavirus has winded the jobs market and some companies are barely keeping their heads above water. That’s why it’s a good idea to start preparing yourself financially in case your employer asks you to take a pay cut or worse, has to let you go.

                                  In these unusual economic times, it pays to be prepared.


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                                  author-avatar
                                  Emma Duffy is Assistant Editor at Your Mortgage and  Your Investment Property Mag, which are part of the Savings Media Group. In this role, she manages a team of journalists and expert contributors committed to keeping readers informed about the latest home loan and finance news and trends, as well as providing in-depth property guides. She is also a finance journalist at Savings.com.au which she joined shortly after its launch in early 2019. Emma has a Bachelor in Journalism and has been published in several other publications and been featured on radio.

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