Has working from home (WFH) become your new norm? What’s the impact on your budget and how can you make the most of it?
There is no doubt that the COVID-19 pandemic has changed the way we’ve worked in 2020, and it seems likely that this sudden move to working from home may have changed the way we work forever.
According to the Australian Bureau of Statistics (ABS), two in five Australians (41%) with a job reported working from home one or more times a week in October. This compares to 12% reporting working from home most days before March 2020. And in a sign that the WFH trend could continue, a recent survey commissioned by the Boston Consulting Group showed that between 41 and 60 per cent of the respondents who can work from home would prefer to keep doing so two or three days a week.
Working from home has a direct impact in terms of reduced commuting time and the associated travel costs. When combined with the lockdown measures that have been in place since March 2020, it is not surprising that a survey conducted by the ABS shows that one in seven Australians (15%) have both increased savings and reduced debt since the COVID-19 restrictions began. In fact, 12% of people surveyed said their household finances had improved in the prior 4 weeks. The decline in consumption has had a real impact on disposable income and the savings ratio in recent months.
If you are working from home these days, you can claim a tax deduction for the additional expenses you incur but remember – you must keep a record of the hours you have worked from home. After all – every bit counts!
According to the ATO, the additional expenses you may be able to claim include:
- electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- cleaning costs for a dedicated work area
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the
- full cost of items up to $300
- decline in value (depreciation) for items over $300.
The ATO website lists out the three ways of calculating home office expenses, depending on your circumstances and the tax year you are claiming them in.
There are many Australians who are working from home that have been financially better off. If this is you, here are a few ideas on what to do with the savings:
Pay down expensive debt
The first thing to focus on is reducing debt, particularly expensive debt such as credit cards and buy now, pay later (BNPL) arrangements.
It seems that many Australians have been focused on doing just that. RBA data shows that in the 12 months to September 2020, balances accruing interest, i.e. credit card debt, fell by 28% from $29.3 billion to just under $21.2 billion. Given an average credit card interest rate of 13.76% per annum, with rates as high as 24.99%, it is definitely worthwhile making sure you clear this debt as quickly as you can.
We also note the rising popularity of buy now, pay later arrangements, with popular provider Afterpay’s full year financial results showing that they added an average of 17,300 customers each day during FY20 globally, including an increase to 20,500 a day during the fourth quarter (March – June 2020).
A recent report from the Australian Securities and Investments Commission (ASIC) shows a worrying new trend, with one in five consumers reported to have missed their BNPL payments, from providers like AfterPay, Zip, and Humm. In the 2018/19 financial year, over 1.1 million transactions incurred multiple missed payment fees, which represents 45% of all transactions that incurred missed payment fees.
Set some aside for a rainy day
Despite a reduction in spending since the lockdowns commenced in March, one in seven Australians (14%) reported in mid-August that their household was unable to pay one or more selected bills on time over the last twelve months due to a shortage of money, and 23% of Australians said they wouldn’t be able to raise $2,000 within a week for something important.
So, if you find yourself with extra money at the end of each month, you might want to consider stashing at least some of it away in a savings account or in an offset account if you have a mortgage.
As a rule of thumb, Moneysmart suggests aiming to have enough in your emergency fund to cover three months of expenses.
Plan for the future
If you have your rainy-day fund sorted, and no expensive debt to consider, you might want to think about paying extra on your mortgage or contributing more to super. There are pros and cons of each strategy, with the right choice depending on your personal circumstances.
As discussed previously it has frequently made sense in the past to focus on paying off your home loan faster, given the benefits to be gained from saving on the interest over time.
With home loan rates at historic lows, it may be worth comparing the interest rate you are paying on your home loan to the rate of return on your superannuation fund – you may find that the returns on your super are higher. Those rates of return will vary over time, as markets move, and there are caps on how much you can contribute to super. Timing is important too as you can’t access those funds until you reach preservation age or meet certain conditions of release. Depending on your circumstances, contributing to super might not be the right strategy, especially if you think you might need to access those funds before you are legally able to access them.
Speak to an expert
If you find yourself in the position where you have extra income, and you want to make sure you are making that money work as hard as possible, speak to one of our financial planners. We can help identify the right strategy for your situation.
1ABS, Household Impacts of COVID-19 Survey – October 2020, released 16 November 2020, https://www.abs.gov.au/statistics/people/people-and-communities/household-impacts-covid-19-survey/oct-2020
3ABS, Household Impacts of COVID-19 Survey – September 2020, released 13 October 2020, https://www.abs.gov.au/statistics/people/people-and-communities/household-impacts-covid-19-survey/sep-2020#household-finances