How to start over financially after disaster

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It's never easy starting over - especially after what has been a very difficult few years for many Australians.

From the raging bushfires of 2019 to COVID-19 and most recently, record flooding across eastern Australia - many people's lives and finances have been on a rollercoaster.

So, if your budgets have taken a hit and you need to do a financial reset, here are a few steps to help you on your way.

how to start over financially after disaster covid floods bushfires
Em Trotter and daughter Evie-Meg sit on the verandah of their flood-affected home in the small community of Croki near Taree on March 28, 2021. Photo by Lisa Maree Williams/Getty Images.

Reach out for support 

If you have experienced a disaster like the recent floods there are a range of measures and assistance available from government, banks and institutions and businesses.

For example, the federal government has introduced the Disaster Recovery Payment of $1000 per adult and $400 per child, available to all affected Australians.

The one-off lump sum payment is non-means-tested and is available in local government areas for those who've suffered significant loss from recent devastating weather events. While this is a mere pittance if your whole home has been badly damaged, every little helps.

There is also a Disaster Recovery Allowance available, which provides short-term income assistance if your income has been affected by the floods.

Additionally, most banks are offering support measures such as loan deferrals or reduced repayment arrangements for home, personal and some business loans.

Finally, contact any provider you usually expect a bill from to let it know you are in financial distress. Most companies will be happy to defer your payments rather than just letting those bills pile up - which can affect your credit score and add to your stress.

Insurance 

The floods and bushfires are great examples of why it's essential to have good home insurance. Many banks, in fact, make this a compulsory part of applying for a loan. However, it can often be more expensive to renew your insurance if your home has been flooded. Make sure to build this extra cost into future budgets.

If you're very unlucky, you may find renewal is just not possible. Research in Ireland found that no insurers in that country were willing to offer a new policy to a homeowner who lived in a flood-prone area and experienced a flooding event in the last three years. This is a rare occurrence in Australia, the higher likelihood here is that the increased renewal costs become unaffordable.

So, what can you do if insurance covers your current repair costs, but you can't get or afford a new policy? The simple answer would be to sell your property and move to a less flood-prone area.

However, owners might find that recent floods will make their properties harder to sell. If you're lucky, the recent property price rises in Australia will be sufficient to buffer some of this loss.

Consolidate any existing debt 

Consolidating debt is the best way to reduce your combined interest charges and fees. If you're repaying debt on several credit cards, for example, chances are you're also paying multiple sets of fees - as well as repaying separate interest charges on each of those.

A better option is to move that debt to a 0% balance transfer card. This can help you save money on interest charges from existing credit cards (or personal loans). It should also simplify your payments into one monthly statement and reduce what you're paying in annual fees. However, resist the urge to go on a spending spree with your new card until you have paid off your existing debt.

Develop a budget

The process of planning, tracking and managing your spending is an important one anytime, and even more so if you are experiencing some issues with your finances.

This doesn't mean you now have to save every single dollar you earn and go without. A good budget should simply help you manage your ongoing expenses and allow you to achieve your financial goals. This will then give you the financial freedom to allocate money towards "fun" expenses.

Free budgeting apps can help to keep you accountable for your spending, and show you where you could be saving money by switching to a better deal.

Maximise your savings

The easiest way to build a robust nest egg is to have your money in an account that provides a generous, ongoing savings rate. Unless you have an offset account that reduces the cost of your mortgage, all of your spare cash should be in a savings account.

Be wary of introductory offers which drop to next-to-nothing after three or four months. Some banks will offer high ongoing interest rates, as long as you fulfil some deposit or spending criteria. 86 400 (1.2%), ING (1.35%) and Virgin Money (1.2%) are offering some of the best ongoing rates on the market right now. Of these, 86 400 has the easiest criteria to satisfy.

Earn

If you're looking for a little more of a return from your savings, there are innovative investment options on the market that offer higher interest rates than saving accounts, with relatively low risk. One of these is Finder Earn - a cryptocurrency investment product that offers 4.01% annual return for deposits of up to $50,000.

Monitor and reduce your spending

It's a good idea to track all of your large or recurring expenses - and take an occasional look at what expenses you can cut. I recently realised, for example, that both of the shows I was watching on Netflix were also available on the cheaper Paramount Plus platform. As I was already paying for both, I was able to cut Netflix and save $17 a month.

Seek out a side hustle

If you have the time and the energy, you could start looking at other ways to give your income a little boost. Selling stuff online, delivering parcels or driving for a rideshare are all viable options.

If you have a skill, you could try your hand at freelancing on platforms such as Upwork.

Shop around for better deals

Most Australians tend to stay with the same energy or insurance for long periods of time, without checking they are on the best deal. In reality, new customers generally get better prices. In the finance industry, this is known as the "lazy tax". Doing a quick comparison doesn't take long, and can pay dividends.

If you own a car, make sure you're getting the best deal possible on your insurance. Finder.com.au researchers recently requested comprehensive car insurance quotes from 43 different insurance brands across 8 different driver profiles. Interestingly, they found an average price difference of over $2,000 a year. While some more expensive policies will have a wider suite of benefits, it shows how much you can save by shopping around.

Finally, if you're a homeowner, the most important number in your financial life is your home loan interest rate. Reducing this can save thousands in the long run - so consider refinancing to a cheaper home loan rate. There are plenty of competitive deals out there, with some including sizable cashback offers.

Of course, if you do get a nice pile of cash back after switching - make sure to drop it straight into your high interest savings account.

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Graham Cooke is the head of consumer research at Finder, where he runs the global insights team. One of Australia's leading personal finance experts, he regularly discusses the housing market on ABC News, Channel 7 and 9 News, Today and Sunrise. A seasoned data journalist, Graham edits Finder's RBA Cash Rate Survey, Insights blog and Consumer Sentiment Tracker. He has written articles for publications including Westpac Wire, Homely and Soho and judged financial awards for the Australian Financial Review and the Australian Mortgage Awards. You can follow him on Twitter at @gcooke42.

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