Covid-19 has thrown a spanner in the works in many of our plans, not least of all our financial plans. The pandemic has threatened job security and pay cuts are not uncommon. On the bright side, overall expenses have gone down. What are the lessons we can take away from the pandemic on financial planning moving forward?
1. Maintain 6 months worth of emergency funds
Losing your job or receiving a pay cut during the pandemic is a terrible situation and casts anxieties on the future. But it isn’t as bad if you have some emergency funds to tide you over. To calculate how much you need, add up all your expenses in a month, including food, transport, utilities, bills, mortgage repayments, car loan repayments. Multiple the amount by the number of months required.
At the minimum, set aside 6 months worth of emergency funds. If you are self-employed, or face higher risk of pay cuts and retrenchment, aim for at least 12 months. Keep this money liquid and easily accessible, so that when calamity strikes, you can live on your emergency funds for some time as you search for a new job.
2. Review your insurance policies
Working from home and staying home, even in Phase 2, offers a lot of time for contemplation and planning. Take some time off your Netflix binge and review your insurance policies. If you can, draw up your plans one by one and put it in a spreadsheet. Make sure you are well covered even in the event of hospitalisation, death, disability, or critical illness.
We also cover how much coverage you need and how much you should be spending on insurance in this article: How Much Should You Spend On Insurance Every Month?
If you find that you have been paying a lot for insurance, it’s time to reach out to a financial adviser to do some comparisons and get cheaper plans.
3. Relook investment portfolios
The Covid-19 is changing the economy forever. For the last 2 to 3 months, we have been remote working and doing more online shopping. Travel has basically been obliterated. How the economy looks in the future is still uncertain.
Covid-19 or not, it’s good to relook at your investment portfolios from time to time and decide whether your shares, stocks, and bonds still work for you in the near to long term. Then, make necessary adjustments.
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4. Reassess your expenditure
Many of us would have realised that general expenses have gone down by quite a lot as we stay home. This is a good opportunity for you to relook at what is actually necessary.
Go into your credit card online app or your ibanking app and look at where the money is going out to. Perhaps you may have realised that you can cook and eat in more rather than dine out at restaurants or order delivery for every meal. Or, you could cut down socialising at bars to once a month rather than every weekend.
By stripping away what is unnecessary, we can reassess our expenditure and put more towards our emergency fund or investments, achieving our financial goals earlier.
5. Re-evaluate monthly income
Hand in hand with point 4 is to re-evaluate your income. Are you being paid fairly at your job? If not, plan a time to re-negotiate your pay.
It’s also good to list down your inflows of income, such as income from your main job, dividend from investments such as unit trusts, maturity proceeds from your insurance plans, or side gigs.
If your only source of income is from your main job currently, that is also okay. But see if you can diversify your income in different ways, so that even when you lose your job, you still have some sources of income for basic necessities until you get back on your feet.
6. Lower your liabilities
The other side of the equation is to lower your liabilities. With extra savings gained from not going out as much, consider putting more towards your liabilities like your mortgage loan, student loans, or car loan. You could also speak with a mortgage specialist to help you refinance your home loan as mortgage interest rates have fallen as well. By working smart, not just hard, you can consciously inch towards a debt-free life.
7. Re-adjust career goals
As the fourth industrial revolution accelerates quickly, many jobs will soon become obsolete. Traditional corporate structure may also become irrelevant.
Whatever age you are, take some time to check if your career skills are still useful in today’s market. If not, look at reskilling or upskilling. Being nimble is the only way to survive through market changes. There are courses and resources available from the government and elsewhere.
Need help on financial planning? Contact our independent financial advisers for a no-obligation consultation!