The coronavirus outbreak and reports of how it will impact the economy continue to dominate the news. A key concern for many of us is how to manage our finances amidst this global pandemic. There are many questions that arise, whether it’s about making monthly instalment plans or credit card bill payments now or to defer them for a couple of months, or how to plan for the upcoming financial year in the wake of an uncertain economic scenario, or deciding on where to keep our savings in this uncertain market.
In an environment like this, one needs to go back to basics and make sure that we have a sound financial plan in place. The truth is that one needs to plan for an emergency before it hits, but ready or not, here we are.
Let’s look at a few practical pointers that can help as you look to put your finances in order.
1. Have an emergency fund and control spending
Never forget, every cent count! An emergency fund worth three to six months’ expenses are a must in this scenario. Simply put, you must have enough cash to cover your living expenses until the current crisis passes. You may even want to temporarily reduce contributions to your retirement plans and focus on redirecting the money to your emergency fund. You can resume contributions towards your various savings plans once the crisis is over.
Every extra ringgit saved will help you manage through this period and keep you calm. To successfully accumulate emergency funds, you must minimise day-to-day spending. A simple tip — make digital payments especially wherever discounts are available!
On the other hand, government aids are available for individuals looking to manage your personal finance. Instead of using the remainder of what is left in your savings account for day-to-day transactions, register for the monthly RM500 EPF withdrawal allowance if you are under 55.
For those who are being laid off or forced to take unpaid leave, the Humans Resources Ministry has announced that workers are entitled to their salaries throughout the restriction movement order. The prime minister also announced a RM600 monthly cash assistance (up to six months) to help workers who are forced to take unpaid leave.
2. Continue paying instalments, defer only if facing an extreme cash crunch
The six-month moratorium allowed by Bank Negara Malaysia (BNM) on monthly instalment repayments seems to be a breather for those who had been demanding a deferment due to the lockdown. However, the moratorium provides no interest payment relief to borrowers. If you choose not to pay your monthly commitments, you will be charged an applicable monthly interest rate. If you need to skip payments do it by ranking your payments by the amount and interest rate payable. Credit card debt tends to be at very high rates, so best to pay off on time and minimise expenses. The silver lining is that deferring payments at this point will not impact your credit score.
However, if you are working in sectors like aviation, travel, hospitality, retail, manufacturing and automotive where growth has been badly hit, chances are quite high that there could be severe job losses or pay cuts as it may take three to six months for the businesses to recover. In such a scenario, you can consider contacting your lenders to reduce the monthly commitments pay-out by increasing the term of the loan.
3. Buy health and life insurance plan or update current policies
One of the most cost-effective ways to protect yourself against a possible financial emergency is by ensuring adequate health and life insurance cover. A term insurance cover is a must, it’s a no-frills plan that offers the highest life coverage at most affordable prices.
A health plan is also recommended if you don’t have one so far. Even if you have a cover from your employer, it’s highly advisable to have an individual cover.
Of course, as a policyholder, you will need to check the terms and conditions as well as the benefits. After all, every insurance company has its own set of policies. If you’re unsure, the Life Insurance Association of Malaysia (LIAM) members include AIA, Allianz Life Insurance Malaysia, AmMetLife Insurance and Prudential Assurance—among others. You can check the list here.
Fast forward to March 2020, the members of LIAM announced that they will be taking proactive steps in providing additional relief measures for policyholders who are affected by the economic slowdown as a result of the pandemic. Additional benefits include RM5,000 cash relief for policy holders who have tested positive for COVID-19, cash benefits or allowance for hospitalisation, and special lump-sum death benefits (ranging from RM5,000 to RM20,000).
4. Don’t wait– Build long term savings through regular investments
People are often confused about when is the right time to invest. The fact is, there is never a right or wrong time to start investing in order to build your savings. Multiple studies have shown that it is the time in the market that matters rather than when you enter the market. The longer you are building your corpus through a systematic plan, the better you are hedging the risk of market fluctuation and compounding returns.
Have a target savings amount per month in mind and invest that in a disciplined manner. In order to build the right corpus, you can look to invest in Mutual Funds or unit trust Mutual Funds are more flexible and tend to have a wider range of choices. Online unit trust, on the other hand, have advantages in terms of lower cost and tax-free returns for a long term investment period. Unit trust is particularly effective for building savings for your children as they come with a feature that in case of the sudden death of the parent, all future premiums are paid by the insurer. The money thus keeps growing and the child gets the full amount as planned when the policy matures.
To conclude, these are very uncertain times and it is natural to be worried about your finances. Stick with the basics — have an emergency fund in place, spend only on what is absolutely needed, ensure that you have insurance to protect your family from any unexpected event and finally, keep investing regularly to build your long-term savings. Stay safe and remain positive.