How to recession-proof your family’s finances
It is difficult to avoid seeing the terms “global recession”, “sell-off”, “bear market” and “retrenchment” staring at you in the face these days, no thanks to the virus pandemic and volatile environment.
With the prospect of recession rearing its ugly head, it is prudent to start preparing for tough times and get a better handle on our personal finances. Some of us may face the possibility of suffering a wage cut or worse still, losing our jobs. Some people in the gig economy have already seen their bread and butter dwindling to zero which resulted in government relief grants to support them.
The best insurance against the risk of unemployment is having a sound financial plan with adequate emergency cash, constantly upgrading our financial know how and skills set, and the willingness to look for income opportunities even if it means working outside our comfort zone.
Here are 8 tips to recession-proof your finances.
1. Assess your financial health
Take the opportunity to review your financial situation and make your financial plan more resilient to prepare for the uncertainties that lie ahead. Do ensure that you have set aside enough emergency cash for the rainy day, pay down your debts especially those that incur high borrowing costs like credit card bills, and review your essential insurance needs like term insurance (especially if you are servicing a mortgage) and healthcare cover. Use a digital advisory tool like NAV Planner to help you track, protect and grow your money in a convenient manner.
2. Tighten your belt
Keep a tight lid on your cash flows and monitor your spending habits with the help of a digital app. Detail your money flows and look for ways to prioritise your spend on needs and wants. A realistic budget will help you crystallise your income and expenses as well as your assets and liabilities, and help you track them effectively.
Your starting point would be to cut down on discretionary services or items you don’t need. They would include anything that you would typically consider as a luxury or a lifestyle expense.
3. Review your home loan
With sliding home loan interest rates, it is timely to review your mortgage loan and work out the costs and benefits of refinancing or changing your loan package, especially if your lock-in period is over. Do work out the associated fees and potential penalties for partial and full loan redemption. In addition, are offering a deferment in home loan payments which will certainly help in your cash flow in the near term.
4. Keep your job and upgrade your skills sets
Do not be complacent in your job and find ways to enhance your skills sets constantly. That is one of the best ways to cushion yourself from being laid off when the company decides to go on a cost-cutting exercise. It will also be easier for you to find another job faster if you have constantly upgraded and kept your skills and knowledge relevant.
Make use of the SkillsFuture Credit Top-ups of S$500 by evaluating what are the suitable job improvement courses that you can attend to enhance your skillsets, before it expires in December 2025. Older Singaporeans aged 40 to 60 get another S$500 with the same expiration date. And if you have not used the previous credit top-up of S$500, take advantage of that too as it has no expiry date.
5. Preserving and accumulating wealth
Depending on your time horizon and risk profile, consider investing your surplus cash in suitable and diversified investments to take advantage of the power of compounding and make your savings work harder for you during this period marked by market sell-downs and uncertainty. However, do ensure that you do so with savings that you do not need in the short-term, partly because investments come at a risk and you need time to ride out the market volatility.
To mitigate the uncertainty, do not put all your eggs in one basket and spread out your investments over a period such as via a regular savings plan, rather than investing all at one go. Many retail investors lose their hard-earned money during economic downturns because they had invested in a single company or in a single sector. Diversification is key.
6. Look for income opportunities
If you are asked to take unpaid leave or become retrenched, consider your knowledge and skills sets, and look for job opportunities even if they are in sectors outside your comfort zone. Update your resume and use your network of contacts to source for jobs, including contract or temporary jobs.
If your cash flow situation is very tight, consider liquidating some of your non-essential insurance policies or find out if your insurers allow “premium holidays”, so you can take a break from paying regular premiums while maintaining your cover.
7. Eligibility for government cash payouts and reliefs
Check your eligibility for government cash payouts such as GST Vouchers, and reliefs such as the COVID-19 Support Grant to tide you over this challenging period. Under this initiative, low- and middle-income employees who lose their jobs between May and September 2020 due to the impact of the pandemic can receive a grant of S$800 per month for three months. This will help support them as they look for a new job or undergo training.
If you are a freelancer in the gig economy, you stand to receive S$1,000 a month for nine months under the Self-Employed Person Relief Scheme, subject to conditions.
8. Continue your education
If you have always thought of pursuing higher education, this may be a good time. Ensure that your next level of learning such as a diploma, a degree or an MBA is in a field that will be employable and ride out this challenging period while studying.
It is prudent to continually upgrade your financial know how. Check out nav.sg for useful information and tips on personal finance and government schemes like the Central Provident Fund and Supplementary Retirement Scheme.
Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.
All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.