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By Kian Ng


An economic downturn is something we can’t avoid right now. Learn what you can do to ensure smooth sailing through tough times.

“2020 is a bad year for me!”


“I wish I could restart my 2020 to deal with my finances differently!”


“How would my finances look like in the second half of 2020?”


Many Malaysians are asking these questions. A significant number have already been impacted by income loss, pays cuts, and perhaps retrenchment this year due to the pandemic. Financial issues such as debt restructuring, tight cash flow, and lack of emergency funding, are cropping up often enough to begin looking like an expected norm as people are focusing more on the problems rather than seeking solutions for their current financial situation.


Since we can’t turn back time and restart the year, it is important to look at this matter of financial preparedness more objectively to seek for solutions out rather than lingering on things that are not able to be reverted.


The key point is – it is never too late to realize the situation and take the action to solve it even at the cusp of an economic downturn.


Don’t cry over spilt milk.


Here are some simple and proactive tips that you can take when addressing financial issues, especially during an economic downturn.


1. Review where you financially stand


The art of managing finances well starts with identifying where is your current financial standing. This is the most important step, yet most people are not able to get it done correctly due to busy work schedules and many more other excuses. Research shows many people failed to improve their finances was due to failure to identify where they are right now and where they wanted to be in short term or longer time frame.


The analogy I always put forward before I start my meeting with clients is to think of navigation apps such as Waze. In order for it to function correctly, you need to provide it with your original location and destination. From there, the app will provide you with navigation and even a time estimate for you to reach your destination. The same applies to your getting your personal finances in order.


To know where you currently stand financially, first start by finding out the truth about your current cashflow. Find out accurate numbers regarding your income, savings, and expenses. Nowadays there are many expense tracker apps that can help you with this. By identifying your cashflow, you have visibility over your spending on your wants vs needs, and whether you may be living beyond your means.


Next, list down all your known assets. Identify how much you have in liquid assets, investment assets, and fixed assets. It allows you to see some indicator of whether your assets are easily liquidated in the event of emergency, whether you are too much leaning towards fixed assets investing and leaving you truly little room for liquidity.


Thirdly, something many people neglect, is to list down all your known liabilities. This means any loan repayment commitments, including all credit card debts, personal loans, hire purchase loans, study loans, and mortgage loans. This helps you identify the financial commitments you have to bear regardless of your income. Often, there are people who have been unwisely building up liabilities by passing debt to and fro between credit cards and personal loans. In tough times, the commitment to repay may be out of your reach and be aware that interests can go up to 19.56% per year!


Knowing your cashflow, assets, and liabilities will help you identify your current financial standing. There are several possible scenarios you may find yourself in such as deficit cash flow scenario whereby your expenses are more than your income, or surplus cash flows scenarios but yet unable to save. Each and every possible scenario throws up indicators for you to use to identify solutions that you can implement to improve them.


The most rewarding outcome after the above exercise would be to allow you to see clearly if you and your family have sufficient emergency funding in the event your income discontinues. This can give you peace of mind knowing you can brace yourselves during an economic downturn.


2. Set short-term and long-term financial goals


Now that you know where you stand financially, you need to address the gaps by setting financial goals to meet that can improve your financial situation.


Short-term goals are such as paying off credit card debt with credit transfer facilities offered by banks. Consolidating all loan repayments would allow you to have savings to build up your emergency funding. This would increase financial resiliency in an economic downturn.


Mortgage loan for properties are the long-term liabilities to restructure as the OPR has been lowered by 0.75% since Mar 2020. It is an opportunity to shop for options for lower interest rate mortgages. The initial bankers will be a good person to discuss this with to facilitate for better loan options.


These short-term and long-term goal setting gives you an overall view of how execution can be done to ensure financial loan commitments can be paid at the lowest of interest. One will not need to pay extra in terms of financial cost, thus savings can be promoted.

3. Planned VS execution


Most people plan and they plan extraordinary well. However, plans remain as plans when there has been no execution to materialize the plans.


Once the planning is done, you need to ensure the execution is made on a step by step basis to reduce complications. Most people find that they just do not have the time, effort, and capability to follow through with their execution. Success may be more easily obtained simply by breaking your execution into smaller more achievable steps, and with realistic deadlines.


Step by step, sorting out your cash flow, maintaining good savings, and lowering your debt ratios will give you good head start of your finances. It is equally important to continue your execution even during tumultuous financial periods.


4. Constantly review the outcomes


As one’s financial resources are limited especially during an economy downturn, constant review of the financial goals set earlier becomes very important. Sometimes we may lack discipline or resources to execute plans on time. One simple tip to ensure you are on track towards meeting your goals is to keep a good record of your progress. It can even be as simple as a checklist. Knowing your progress can help you re-assess how you have made plans and how to move forward with customizing those plans further based on your progress rate.


As you encounter life changing situations such as getting married, having a newborn baby, or changing from employment to business owner, you may discover your goals are changing and money needs to be allocated differently. With regular reviewing, you have the opportunity to timely switch tracks in order to adapt your plans to your new goals.


When an economy downturn happens, re-assessing your plans to suit the economic climate is necessary. For example, perhaps you prefer moving your investments into more conservative portfolio and hold more cash. Thus, a regular review of your progress and your overall financial plan will provide good data to help you make the best decisions for your finances.


5. Having a neutral third party for second opinion


Oftentimes, we will hear people recommend we get a good XYZ agent if we wish to invest in XYZ investment option or a good ABC agent if we want ABC insurance coverage. These agents’ are likely making a career out of earning your money by introducing you only to their products. How will you know how their products compare with others in the market?


Having a neutral third party with professional financial qualifications makes perfect sense. Licensed financial advisors can give neutral findings on existing plans in hands while providing a review with options after comparing other plans available in the market. This could save you of making financial mistakes which sometimes could be very costly.

Conclusion


These easy tips are simple steps which most people can follow. If you do not have the time and capability, do talk to a licensed financial planner and let them know your goals and objectives. They will be the right party to work with to get unbiased recommendation to improve financial situation especially during an economic downturn.

What is your secret to face this inevitable economic slowdown?

Mengubah pemikiran kewangan sedia ada bukanlah semudah seperti yang disangka. Apakah antara langkah yang boleh diambil untuk keluar dari mentaliti kewangan yang lama?

Apabila berbicara tentang pengurusan kewangan peribadi, perkara yang paling utama yang mampu menentukan sama ada pelan yang anda rancang mampu dilaksanakan adalah status pemikiran kewangan anda. Mungkin anda mahu bebas dari hutang, ingin menyimpan duit, melabur, ataupun hendak mencapai nilai simpanan tujuh angka menjelang persaraan. Namun, anda masih tidak mampu mencapai status kewangan yang ideal. Ini adalah kerana anda masih kekal di dalam mentaliti kewangan yang lama.

Ya, maklumat tentang pengurusan kewangan kini adalah semudah carian di laman Google sahaja dan anda akan menemui  beribu artikel atau maklumat tentang kaedah untuk mencapai matlamat kewangan diri.


Tetapi, mencapai matlamat kewangan bukan semata-mata hanya pengetahuan sahaja tetapi ia adalah bagaimana anda menjadikannya satu kenyataan. Tidak hairanlah jika percubaan untuk menyimpan atau membuat pelaburan ada kalanya tidak menjadi atau tidak mampu mendatangkan hasil seperti yang diinginkan.


Mengubah set pemikiran anda merupakan satu usaha yang berterusan dan beberapa kaedah boleh dilakukan untuk merealisasikannya.


1. Tanamkan matlamat kewangan yang jelas.


Laluan untuk mencapai matlamat kewangan perlu bermula dengan kesedaran bahawa setiap keputusan mempunyai kesan dan jika usaha dibuat secara tetap, ia adalah tidak mustahil bagi mencapai matlamat yang diingini. Ia boleh dilakukan sebelum membuat keputusan pelaburan yang besar atau memulakan langkah pertama untuk menyimpan bagi tabung simpanan kecemasan.


Misalnya, jika anda mahu menyimpan untuk membeli rumah pertama, kenal pasti kemampuan anda setiap bulan untuk menyimpan dan berapa lama jangka masa yang diperlukan untuk mengumpulnya. Dengan mengenal pasti matlamat yang diigini, lebih mudah untuk anda merangka langkah bagi mencapainya.

2. Jangan sesal dengan kesalahan kewangan lampau


Sebagai manusia, kita tidak dapat lari daripada melakukan kesalahan dan membuat percaturan yang salah dalam keputusan kewangan.


Memaafkan diri sendiri adalah cara untuk memastikan kita tidak putus ada dan kurang motivasi akibat dihantui oleh perasaan bersalah tersebut. Ia juga mampu memupuk tabiat yang lebih baik terhadap pengurusan kewangan dengan mengenal pasti di mana kesalahan anda dan mengambil pengajaran daripadanya.


Daripada kesalahan, kita boleh belajar untuk tidak mengulanginya dan mengenal pasti apakah langkah-langkah seterusnya yang boleh dibuat untuk mengelakkannya. Di sinilah penasihat kewangan memainkan peranan yang amat penting untuk memandu anda kepada perancangan kewangan peribadi yang lebih baik dan holistik.


3. Rangka dan kekalkan tabiat kewangan yang baik


Apabila sudah mempunyai matlamat, ia adalah masa yang sesuai untuk mencipta tabiat kewangan yang baik dan berterusan. Fahami di mana wang anda pergi dan pastikan anda boleh mengenepikan sebahagian daripadanya untuk simpanan. Mulakan dengan tindakan yang kecil, seperti simpan RM1 sehari di dalam tabung yang sukar untuk dipecahkan. Ia mudah dan tidak membebankan. Apabila anda rasa sudah selesa dan boleh melakukannya dengan konsisten, cuba naikkan jumlah simpanan tersebut dan dengan cara ini, anda mampu menyimpan dengan lebih banyak tanpa tergesa-gesa.

4. Hadapi ketakutan dan ketidakselesaan


Takut dan tidak selesa boleh berlaku apabila anda perlu menghadapi perkara yang tidak disenangi. Contohnya adalah apabila anda melihat semula perancangan kewangan anda.  Ia mampu menzahirkan perasaan tidak yakin dan mampu menghalang anda untuk mencapai matlamat yang diingini.


Apakah yang akan berlaku sekiranya tindakan tertentu diambil? Adakah anda mampu untuk  menanggung impak daripada tindakan anda?


Salah satu cara yang berkesan untuk menghadapi ketakutan adalah mengenal pasti semula apakah sebab atau matlamat yang anda mahu capai dan lihat segala kejayaan samada kecil atau besar. Jika anda boleh lepasi ketakutan tersebut, tidak mustahil untuk mencapai apa yang anda inginkan.


Kenal pasti apakah ketakutan itu dan rangka satu tindakan yang boleh mengatasinya. Jika anda takut dengan komitmen hutang yang banyak, pastikan anda buat jadual untuk membayar hutang dengan lebih tetap dan perbaiki aliran tunai semasa.


5. Hargai pencapaian anda


Sentiasa memastikan bahawa setiap kejayaan dan langkah yang dibuat untuk membaiki tahap kewangan anda adalah perkara yang perlu diraikan. Walaupun ia mungkin kecil tetapi setiap tindakan yang besar bermula dengan langkah yang kecil.

Terapkan dalam diri anda bahawa setiap kejayaan itu adalah penting dan ia boleh menjadi pembakar semangat untuk meneruskan usaha mencapai matlamat kewangan yang dinginkan.


Antara langkah yang baik adalah tulis kejayaan kewangan anda dalam jurnal sebagai rujukan untuk masa depan.


6. Dapatkan nasihat daripada pakar


Ia adalah normal jika anda berasa ragu-ragu dan juga kurang pasti akan keputusan kewangan yang mahu diambil. Anda juga takut akan terpengaruh dengan dakwaan sesetengah pihak untuk membuat keputusan pelaburan atau pinjaman yang mungkin akan memberikan kesan yang besar pada masa depan.


Oleh sebab itu, amat penting untuk anda mendapatkan panduan dan nasihat daripada penasihat kewangan berlesen yang boleh memacu anda ke arah pelan kewangan yang lebih tersusun dan menyeluruh. Melalui proses pengumpulan data ataupun ‘fact finding’, mereka akan mengenal pasti kedudukan kewangan terkini dan boleh merangka pelan yang lebih baik dan mampu memberikan pulangan yang kurang risiko dan lebih bersifat jangka panjang.

Kesimpulan


Mengubah pemikiran dan membuat tindakan baru bukanlah semudah seperti yang disangka terutamanya apabila ia melibatkan perancangan kewangan. Anda mungkin tidak mempunyai pengetahuan yang mencukupi tentang kewangan dan berasa kurang jelas akan tindakan selanjutnya. Anda juga risau bahawa tindakan anda hari ini akan menjejaskan masa depan anda.


Oleh sebab itu, adalah amat penting sekali untuk memastikan maklumat dan ilmu yang anda peroleh tentang pengurusan kewangan adalah daripada sumber yang sahih seperti penasihat kewangan berlesen. Elakkan membuat keputusan kewangan dengan terburu-buru dan banyakkan membuat kajian dan bacaan berkaitan bagi menjadi pengguna yang lebih bijak dan berhemah.


Apakah matlamat anda untuk memastikan set pemikiran semasa pengurusan kewangan? Kongsi dengan kami dalam ruangan komen di bawah.

By Saidah Asilah Abdul Shukor


Gain insight on what are money market funds and income portfolio. Explore these alternatives to saving accounts and fixed deposits in a low interest rate environment as shared by a licensed financial planner.

Knowing your alternatives and option


Do you know what alternatives are available to savings accounts and fixed deposits? What investment options are there available to provide income, safety of principal, and liquidity? If you are unsure of your options, the time is ripe for you to learn about money market funds.

Once, I had a client who was strictly about three options when it came to parking his money. Fixed priced Amanah Saham Nasional funds, savings account, and last but not least fixed deposits. He had no idea about other alternative investments that guarantee principal yet offer liquidity.

It is not wrong to have conservative investment preferences. If a client prefers to preserve his nest egg than risk it in search of larger gains, or if he needs funds within the next few months for a down payment on a house or for emergency purposes, a more conservative approach will be recommended. For example, the most conservative allocation would be 100% investment in savings account or fixed deposits.


However, savings and fixed deposits have a lower rate of return. Referring to the figure below, as you take on more risk the potential returns are higher as well. Depending on your financial goals, you will want to find the right type of investments that meets your priorities. Below we will be exploring low risk investments that may serve as a good alternative to savings and fixed deposits while providing better returns and not taking on too much risk.

Malaysia’s interest rate and our economy


It would be remiss to talk about returns from savings and fixed deposits without covering interest rates briefly. Essentially, the interest rate is a cost of money. It is the price you pay when to borrow money and the reward you receive when you lend it to someone else. In Malaysia, Bank Negara Malaysia (BNM) uses the monetary policy to reduce official interest rates when economy growth is too slow and spur the economy.


We are in the fourth consecutive reduction of Overnight Policy Rates (OPR) by Bank Negara Malaysia in the year 2020 itself. It is the lowest rate in 16 years to a record low of 1.75% bps. Some economists predict the OPR will be cut again in late 2020, when the moratorium ends in September.


A look at the state of fixed deposits


Bank regularly promote fixed deposits (FD) to the customers with different tenure of offerings. Fixed deposits are a financial instrument from banks providing FD holders with higher returns than a normal saving account. For more information on FD, you can refer to this fixed deposit article.


FD rates are affected by BNM base rate which is different depending on the bank. Some 3 months or 1 year. Current practices of relying on fixed deposits may not relevant anymore.

“Inflation rate on CAGR (compound annual growth rate) 1985 and 2019 is about 2.5% per annum. Therefore, putting all the money in FD now would mean the depositors will likely be worse off as the returns are not able to offset the inflation rate.” ~Dr Mohd Afzanizam Abdul Rashid, Chief Economist Bank Islam Malaysia

You may be slightly disappointed if you hope for favorable returns in FD, compared to previous years, with the lower interest rate scenario. A lower interest rate also sees lower deposits in banks which would like to lock in your deposits for a period of time by offering FD products. However, with the current economic situation due to Covid-19, many Malaysians have opted to save in saving accounts or even not make steady deposits to the bank due to loss of income from pay cuts or retrenchment. At the same time, lower interest rate also encourage loan borrowings to individuals and businesses.

Options for portfolio management


Choosing the right fund has never been easy no matter your risk appetite. There are alternatives other than placing your money in savings accounts or FD for returns. An alternative that is increasingly popular is portfolio management which relies on technology, a professional fund management team or both to carefully build a portfolio.


No two person’s investment risk profile and investment mix are exactly the same. Having the right investment mix and asset allocation is dependent on a person’s age, retirement goals time frame to access the money, and measures to determine how comfortable one is with risk.


A conservative allocation is a good alternative to savings and fixed deposits. This is suitable for scenarios such as:

  • Emergency savings

  • Retirement expenses for the next 3 to 5 years

  • Short time savings for a goal in the next 1 to 2 years

This can be done with a portfolio which is conservative and fairly liquid. This helps one make sure funds are largely secure with very low risk to capital but still requiring a measure of growth to outpace inflation. An income portfolio can be setup with the majority (ranging from 40-80%) of funds in money market funds and the remainder in fixed income assets such as high grade bonds.


Key differences between money market VS fixed income funds


Money market and fixed income funds are unit trust funds which are a collective investment scheme operated by an investment company. The investment company raises money from investors and the fund manager invests in a group of assets in accordance to a set of objectives. As in the earlier figure, money market and fixed income funds in the lowest risk categories.


Money market funds are invested in bank deposits and short term placements with less than one year to maturity. In short, money market funds invest in liquid, low risk money market instruments that are in effect short-term deposits (loans) to banks. Some money market funds specialize in or invest only in government securities. These are generally very low-risk funds offering modest returns around the rate of fixed deposits.


On the other hand, fixed income funds invest in debt securities like bonds, debentures, mortgages that pay regular interest, or in preference shares of companies which pay regular dividends. The goal is to provide investors a regular income stream with low risk. Fixed income funds can generate higher returns by taking on slightly more risk.


A portfolio approach can take the best of both money market funds and fixed income instruments to build a robust portfolio with returns better than fixed deposits and savings accounts while remaining fairly liquid and low risk.


Consider contacting a licensed financial planner to create an asset allocation which helps you:

  1. Create a disciplined portfolio approach to investing and take advantage of dollar cost averaging.

  2. Reduce the time taken to decide on investment choices and regular rebalancing.

  3. Reduce portfolio risk through diversification across different asset classes, sectors and markets.

There is no ‘one-size-fits-all’ strategy and therefore, your licensed financial planner would be able to construct one, in line with your own perimeters.

Are you placing funds in a money market fund or an income portfolio? 

© 2020 Wealth Vantage Advisory

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