- 20 July, 2022
Something positive from the pandemic
With COVID-19 having reaped havoc on the lives of 25 million everyday Australians it might seem strange to be making comments about positives.
And I am not just talking about washing our hands more often, or perhaps keeping a little distance between ourselves and the next person, or even wearing a mask in crowds, but rather what has happened to our personal finances.
I am the first to say the pandemic was a terrible thing, in an economic, health, and social sense. But sometimes, in every cloud there is a silver lining.
One of the recurring images I have when the pandemic hit back in early 2020, and the country went into its first lockdown, were the queues of people lined up around the block trying to get into their local Centrelink office to claim benefits.
I recall people being interviewed saying they had to get benefits as they only had very limited savings. Many people mentioned they had less than $1,000 and without Government financial support, they could not survive. The queues were not only young people who may have had a part-time job to support themselves while studying. They were people of all ages.
For regular readers of this blog, you will know I am a huge fan of having an emergency fund of at least a couple of thousand dollars, to cover unexpected situations. This is not money to be spent escaping Melbourne for a weekend in the middle of winter, although I guess that could appear to be an emergency for some.
In a perfect world we would have an emergency fund that covered three-months living expenses.
An emergency fund is designed to cover critical expenses that may arise from the unexpected.
This might include urgent car repairs so you can still get to work, replacing income following loss of a job or being temporarily stood down, life-threatening medical, or urgent dental treatment not covered by the public health system, replacement of a hot water system, repair a leaking roof, or other urgent home repairs, and the like. You get the picture.
The emergency fund is not designed for discretionary spending – as hard as the temptation might be to go out and buy new clothes, have a big night out, or escape for a weekend.
In December 2019, before the pandemic took hold, an estimated quarter of Australian households had savings of less than $1,000.
Over the course of the following two years, 44% of households reported a marked reduction in their discretionary spending. No doubt this was due to lockdowns, restrictions to domestic and international travel, border closures, working from home, and a general concern about the future.
During this same period, the level of household “financial comfort”, the theme of the ME Bank’s bi-annual survey, increased significantly. An increase in savings results in people being more confident they can weather a financial crisis, hence an increase in their financial comfort.
Of course, the report deals with averages. Some do better – some do worse. We cannot ignore those doing it tough.
We are not out of the woods yet with a new winter wave of COVID-19 affecting many parts of Australia. As I write this there are renewed recommendations to wear masks in shops and crowded environments, and the possibility of some children returning to learning from home, if the current rate of both flu and COVID-19 infections don’t moderate in the coming weeks.
On top of that, Australia is also now experiencing seriously increasing food, fuel, electricity, and gas prices, along with rising interest rates.
The over-arching lesson to come from the experiences of the past two years is that if we have some money saved, it can have a significant positive impact on reducing financial stress. This translates to improved health and wellbeing outcomes for us and those we are close to.
For those of us with only limited savings, do yourself a favour and cut back discretionary spending, at least for a short while, and put money aside into a separate emergency account. You will feel a renewed sense of financial comfort, security, and wellbeing.