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Five ways to help safeguard your finances through economic uncertainty

Here's some strategies to help protect your finances if the economy takes a turn for the worse.

Australia's economy is often impacted by local and international events, and there's been many unexpected political and economic hiccups over the previous few years. For example, both Brexit and the US presidential election in 2016 had a negative impact on the Australian economy.

Five strategies to safeguard your finances

Australia has been lucky enough to avoid a recession for many years, however it's still a good idea to put some strategies in place to make sure you're protected just in case things take a turn for the worse. Here's five things you can do to get started.

  • Manage your mortgage

Due to the role that the property market will play in an economic downturn, you should try to control the risk associated with your home loan and reduce your mortgage debt strategically. You may want to increase your repayments and fix a portion of your variable rate loan. You may even want to consider refinancing if you can find a better lender.

  • Increase your savings and build up your buffer

It's always a good idea to increase your savings and strengthen your emergency fund, but it's particularly important during times of economic uncertainty. Cut back on your spending and put the surplus into an emergency fund. Having an emergency fund never hurts, even if a recession doesn’t end up occurring. You can determine the appropriate size of your safety cushion by asking yourself how many months you would need to last without an income if you were to lose your job. This may be affected by the nature of your career and how confident you would be in job hunting.

If you struggle with saving, you should treat putting money aside as a priority expense. When you receive your salary, try to deposit 30% of it (or whatever percentage you decide on) into your savings account before paying off your other expenses. Of course, you will have to decrease your non-essential expenses in order to make this savings commitment. You will be surprised at how much of an impact you can make just by saving a fraction of every pay cheque. Put these savings into a high-interest savings account or even a term deposit and let compound interest do all the hard work.

Compare high interest savings accounts

Rates last updated February 20th, 2018
$
$
months
Name Product Maximum Variable Rate p.a. Standard Variable Rate p.a. Bonus Interest p.a. Fees Min Bal / Min Deposit Interest Earned Product Description
RaboDirect High Interest Savings Account
3.05%
1.80%
1.25%
$0
$0 / $1
Introductory rate of 3.05% p.a. for 4 months, reverting to a rate of 1.80% p.a. Available on balances below $250,000
Bankwest Hero Saver
2.60%
0.01%
2.59%
$0
$0 / $0
Ongoing, variable 2.60% p.a. rate when you deposit at least $200 each month and make no withdrawals. Available on balances up to $250,000.
HSBC Serious Saver
3.00%
1.60%
1.40%
$0
$0 / $0
Introductory rate of 3.00% p.a. for 4 months, reverting to a rate of 1.60% p.a. Available on balances below $1,000,000.
ANZ Progress Saver
1.71%
0.01%
1.70%
$0
$10 / $10
Ongoing, variable 1.71% p.a. when you deposit $10+ each month and make no withdrawals. Available on the entire balance.
Westpac Life
2.30%
1.50%
0.80%
$0
$0 / $0
Ongoing, variable 2.30% p.a. each month you deposit money, and make sure your balance is higher at the end of the month than it was at the beginning. No monthly account-keeping fee.

Compare up to 4 providers

  • Lower your level of debt

Going into an economic downturn with an unsustainable level of debt is a sure-fire recipe for disaster. Now is the perfect time to re-evaluate your borrowing and work towards paying off your debts. Consider paying off your credit cards or even cancelling them all together, transferring your loans to a more favourable provider, implementing a viable budget and downgrading your car to decrease repayments. Remember, if you’re questioning whether you can afford a line of credit, the chances are that you can’t. Start managing your debt early and get ahead of the game.

  • Minimise risk and maximise liquidity

For many people, a recession could have a devastating impact on our investments. If you have not already done so, you should consider diversifying your investment portfolio. The more diversified your portfolio is, the better placed you are to handle a dip in the market. It's the classic saying, "don't leave all your eggs in the one basket." You can check if your portfolio is diversified taking a look at these five signs.

Invest in different companies across different industries, divert your funds away from high-risk companies and focus on blue chip stocks. You should also consider defensive or non-cyclical stocks. These are stocks that are not highly dependent on the state of the economy and can still make a profit during an economic downturn such as food or water. This also means assessing any investments you have with businesses whose earnings are negatively impacted by the state of the economy, such as discount and online retailers. It’s also an excellent idea to diversify into international shares and securities, as well as different asset classes like property. And if you haven't yet started investing in shares, it could be a good time to do so.

Compare share trading platforms

Rates last updated February 20th, 2018
Name Product Monthly Fee Standard Brokerage Fee Margin trading - Online IPOs / Floats International Description
IG Share Trading
$0
$8
Yes
Yes
Yes
Low brokerage fees on Australian and international shares. Plus, earn 10,000 Qantas Points when you open a new IG account and place one trade (T&C's apply).
Saxo Capital Markets Share Trading
$0
$9.90
Yes
No
Yes
Access over 19,000 Australian and global shares.
CMC Markets Stockbroking Account
$0
$11
Yes
Yes
No
Trade shares, warrants, options, EFTs, managed funds, bonds and IPOs with CMC Markets today.
Macquarie Online Trading Account
$0
$19.95
Yes
Yes
Yes
Trade Australian shares, ETFs, warrants and mFunds.
HalifaxOnline
$0
$14.95
Yes
Yes
Yes
Trade US and Australian shares, options, futures and CFDs with no registration fees. Trade 24/7 on your desktop, tablet or smartphone.
FP Markets Share Trading Account
$0
$14.95
No
No
Yes
Trade in ASX Stocks and CFDs, International CFDs, CFD Futures, Forex, Indices and Commodities.

Compare up to 4 providers

  • Invest in yourself

Lastly, it may be worthwhile to consider how your current job may be affected by an economic downturn. Are your skills easily replaceable, or can your role be outsourced for a lot less money? If you answered yes, consider updating your skills and taking additional career development courses to safeguard yourself from financial uncertainty. Investing in yourself may be better than investing in any other asset, as it will increase your earning potential for years to come.

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Wilson Zhang

Wilson Zhang is a contributor for finder.com.au. He specialises in investments and robo-advice. He loves these because he believes these to be the way of the future! Wilson has also been an expert in overcooking instant noodles for the past 15 years.

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Savings Account Offers

Important Information*
Bankwest Hero Saver

Maximum Variable Rate

2.60

Standard Variable Rate

0.01
ANZ Progress Saver

Maximum Variable Rate

1.71

Standard Variable Rate

0.01
ANZ Online Saver

Maximum Variable Rate

2.55

Standard Variable Rate

0.50
RaboDirect High Interest Savings Account

Maximum Variable Rate

3.05

Standard Variable Rate

1.80

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