Three golden financial rules that will always stay the same even during COVID-19
Many cash-strapped Australians have rushed to get financial assistance but there’s some fundamental financial rules that never change.
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The stampede of Australian borrowers rushing to get a break on their home loans has been mind blowing.
It’s no longer a race to get toilet paper, it’s become a race to get a mortgage vacation.
Combine this with the horrifying Centrelink queues that we all saw, watching thousands of desperate Australians waiting hours in line to try and get urgent handouts just to keep food on the table.
It’s just shocking to see so many people in serious financial stress.
Only about 5.1 per cent of the population was unemployed this time last month, but how things have quickly changed.
We are now heading towards 10 possibly 20 per cent unemployment in Australia.
Most borrowers were able to afford their regular mortgage repayments but now many have no income or very little money rolling in.
For tens of thousands of these customers they have been left with no other option but to stop their bank taking out money each week, fortnight or month.
The boss of Australia’s biggest financial institution, the Commonwealth Bank’s Matt Comyn, said they had already received 15,000 requests to pause home loan repayments in just a three-day period since the program started.
That stat is damning in itself.
Many homeowners now face the harsh reality of not being able to afford the homes they live in, which down the track could result in negative equity or the foreclosure of their mortgages.
In the Reserve Bank of Australia’s latest biannual stability review it showed mortgage customers were on average 2.5 years ahead of their required mortgage repayments at existing interest rates.
There’s obviously many borrowers not in this boat.
Only about one in three Australians have a mortgage, another third rent and the remainder own their home outright.
House prices, particularly in Sydney and Melbourne, are at insane levels.
This economic crisis will undoubtedly see significant drops to prices – good news for those trying to get into the market (if they can) but the opposite for those who paid high prices for property.
Now, more than ever, people who have lived beyond their means will be struggling the most.
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This crisis has even resulted in the banks rolling out repayment holidays on credit cards and personal loans.
I think credit cards have been a shocking product for millions of Australians because it has allowed them to get into financial black holes that they can’t get out of.
While the future remains so uncertain these three golden rules for managing money remain true – spend less than you earn, live within your means and save for a rainy day.
But, most importantly right now, stay safe.