By Rafiq Hidayat Mohd Ramli
The Covid-19 pandemic has left us feeling afraid and dreading what the future may bring. In this situation, certain financial steps should be taken to ensure the continuation of our way of life.
Originally, I was planning to write an article with regards to how to prepare for a Zombie Apocalypse from a financial standpoint as that was a question that one of my clients had asked me during a financial plan presentation session in early February this year.
I did my research as this was a topic that was alien to me. I was surprised that there were several groups out there that have put a lot of thought into this area. However, as work started to pile up, I put aside writing the article, until the whole Covid-19 pandemic came about and disrupted our lives as we have known it.
So, instead of writing an article on the topic as originally planned, I plan to share with readers, what are the things that one should have prepared in case of emergencies such as the one we are currently going through right now here in Malaysia (and the whole world).
Before I start, I would like to state my biggest assumption while writing this article, is that the financial system will not collapse totally, which means you will still have access to your hard-earned funds or investments if you need to access them.
Now, let us take a look at some steps to minimize the financial impact we experience during this difficult time.
#1. Emergency Funding
The first thing that every single person or family needs to have ready (before the emergency) is their emergency funding. Different people have different definition of the amount that needs to be put aside, but I would recommend that you save at least 6 months of your monthly expenses or better still 6 months of your monthly gross income (under the assumption that this is higher than your expenses).
The higher the amount means more money needs to be put aside, however, when emergencies happen like the current pandemic, you would have access to a bigger pool of funds that would help you last longer compared to those that have not prepared their own emergencies funds.
Just a side note, your emergency funds should be stashed away safely in the highest dividend yielding account that will be reduced by any losses due to market condition e.g. ASB , Tabung Haji, Fixed Dividend, etc.
Another point to ponder, the funds should be liquid or at least near liquid, as you will need to be able to access it fast and easy in the case of the emergency.
For a business owner or entrepreneur, please separate your business emergency funds from your personal emergency funds. You should ensure that you have at least a few months of your operational expenditure for your business put aside in case you are ordered to close shop, similar to the current situation.
#2. Review your budget
Next step, is to review your budget. The more you can reduce your budget, means that the money that you have or will put aside in the first step would last longer. Look into cutting unneeded expenses e.g. wants from your list of expenditures as this might not be necessary if you’re focusing on your survival during the emergency.
Once you have finalized the review, please ensure that when the event actually happens, you stick to the budget that you have prepared and do not overspend because you’re panicking. Going over budget will put yourself at risk.
#3. Having protection
Do I need to focus on protection i.e insurance or takaful in order to prepare me or my family in the event of a pandemic? Having some protection will help, however, in this case your standard coverage will not help you currently, assuming that you don’t die or don’t succumb to the illness.
If you are hospitalized, then a hospital income benefit coverage will help especially for those who are business owners, and/or gig workers. For salary earners, if you do have the extra income, you could also take up a similar coverage, as it never hurts to be prepared.
If and when there are protection for loss of income (for companies or individuals) available in Malaysia e.g. similar to the Employment Insurance Scheme (EIS) under SOCSO, I would advise taking it up as soon as possible.
What about my investments?
First of all, your investments should be medium- to long-term in general. It is normal for changes in market conditions which will affect your portfolio in certain markets. However, if you have a well-designed portfolio with strategic asset allocation to weather different types of market conditions, then you should be prepared for most changes in the economy with the exception of total failure of the financial system.
What would I need to do with regards to my investments in the current situation? My advice to you would be as follows:
Keep adding to your investments regularly, not lumpsum (we don’t really know where’s the bottom). You’ll reap the rewards on the way up if you believe long term the market will recover and be better in the long run. I am personally in this group as i believe there are a lot of good investment opportunities out there in the market.
Do nothing and hold your positions. If you had done proper asset allocation, have your emergency funds stashed away, the current situation still wouldn’t impact you as bad if you didn’t have your emergency funds.
Switch to lower your exposure. For those that are spooked and have a lower risk profile, this would be action that you would take. Just be mindful, that if you don’t switch back on the upswing, you might lose out in the long run.
Realize your losses. Cut bait. If so, please take note, that maybe exposure to the market was never right for you in the first place.
While none of us would like to be in this situation in the first place, it never hurts to plan. Those who fail to plan, plans to fail. Take care everyone, and remember to stay at home, so that this period of uncertainty is not prolonged which will create more stress not just to our personal finances, but the finances of the country as a whole.
Do you have any preparation regarding your financial planning in this tough times? Share with us in the comments section below.