Financial anxiety in a crisis

Post by John Bolton - Squirrel Founder

I’ve been in a few crises. 

The first was launching Squirrel at the height of the GFC. We had no clients, a lot of fixed costs, and a crashing housing market. 

Then, about four years ago, my head contractor on a big property development (35 houses) went bankrupt part way through – with big cost blowouts.

And now I’m facing coronavirus after promising my wife we were finally on the other side.

What’s different with coronavirus is that we’re all in it together.

It simply isn’t our fault and the wider community has a high level of understanding and empathy around what each of us is going through. 

No one is going to think you’re stupid if your business doesn’t survive this. They will simply be grateful they got through, if they get through!

That said, now is not the time to give up – now is the time to make swift decisions to protect your business, if you can.

One of the things that I do is reconcile myself to the worst possible outcome. When you realise it’s not bad, it loses its power over you.

(If death is your worst outcome, then you may want to think of your second worst outcome!) 

That could be locked up in a house with your husband or wife for a month!

For me, it would be losing our business or losing our house. They are easily my two biggest fears. It’s a fear of failure or, deeper still, a fear of rejection. Silly fears really, but we all have them. 

Losing my house

Let’s hit this one head-on. My wife would kill me if I lost the house, so my fear is actually of my wife.

When it comes to borrowing, there’s a reasonable amount of consumer protection in NZ.  Banks must show a duty of care. You will find them supportive, provided they can see you are realistic and trying to fix the problem. 

If you lose your job, banks will typically give you at least a three-month mortgage repayment holiday. 

In terms of the coronavirus crisis, banks and the Government have agreed to a package that gives borrowers a six-month mortgage repayment holiday. If you are impacted by the virus, you will not have to make any mortgage payments for six months.

Even outside of these unusual times, a bank would take at least six months – and more likely nine months – to mortgagee sell a residential client. If you have equity in the property and continue to do the right things and work with the bank, you’ll likely find they have a lot of patience.

If you are a business owner, you might hit a few more roadblocks. Banks tend to take a stronger view to make sure you’re not overly optimistic about your business and that can feel harsh. They want to see you making good decisions – and quickly. If you front-foot it with them, they will tend to be supportive.

Banks like open communication and seeing a level of proactivity.

Even if you ended up at mortgagee sale, provided you have more than fifty percent equity in the property, we could easily arrange alternative finance with a non-bank lender. If you end up struggling to pay the mortgage, then speak to a mortgage adviser early and we can help you form a strategy.

With coronavirus, the Government also has no stand-down period for benefits. If you lose your job you can immediately go onto a benefit. You can then put your mortgage on a repayment holiday. For a mortgage of $500,000, the interest added to the mortgage would only be $8,750 over six months – hardly enough to get worried about (in the scheme of things) and potentially a massive stress relief.

At least by owning a property, you can end up briefly with no accommodation costs and support your living expenses through a benefit or casual work.

Losing my job or business

Nobody is going to think you’re a failure in the middle of a global pandemic that is unlike anything seen since the great depression! 

It pays to only focus on the things you can control. If you are a business owner, plan for the worst and hope for the best. Cut costs early and deep, and work to a conservative or slightly pessimistic forecast.

I’ve seen a generally positive response from employees working less hours on lower salaries, especially when they can see it protects everyone who works for the company. 

At Squirrel, we’ve written a plan for the whole crisis, so everyone knows what needs to happen depending on the market. 

We can’t forecast, because nobody has been through this before, but we can plan on how we will respond to different market outcomes.

Procrastination is a killer when it comes to cash flow. 

Chances are you will burn through cash flow, so make decisions fast.  The risk with any of us is that we rundown cash flow and have another costly surprise with no more money in the bank.

If you are an employee, look for opportunities to stay busy and give yourself a goal over this period.  If work isn’t busy, what about training or study or skills development? What opportunities are there to save money or change a process? We’re all in this together, and that includes your employer.

Managing anxiety

It’s normal to feel anxious. I suffer from anxiety to the extent that I can have debilitating panic attacks. For me, it’s almost always correlated to a lack of sleep and running myself down. Look after yourself. 

We’re living through a global crisis unlike anything we’ve seen before. Now that we are in lock-down, you know what the next month entails, so stop watching the news and stop endlessly reading about coronavirus. There’s nothing new to learn.

The important thing is to remember you’re not alone. We’re all in this together, and help is available.

Whether you need help in the form of government benefits and loans, advice from a financial adviser or mortgage broker, support from a therapist or mental health expert, there is no stigma around asking for help.

Ask for help, early, and together, we can find ways to move forward.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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