The pandemic started since early 2020 does not seem to be ending too soon. Many businesses in Malaysia are now affected especially during the current lockdown. Honestly, we do not know when this will come to an end. There is nothing much we can do about it. It is better for us to get prepared rather than worrying something that we cannot control. The followings are the 5 things we should do on our finances during the pandemic.
The first thing is to visit our monthly cash flow. Cash flow is the king! Clarity is the key! Is our current monthly cash flow now positive? Predict the upcoming 6 months income and expenses. Have a feel on how the ongoing lockdown and pandemic are going to affect our cash flow. Try to find ways to cut down the expenses so that we can have more savings for the rainy days. Things are unexpected now; more cash means more security. Here is a template to key in your financial data to check your monthly cash flow.
Second, we need to have a look at our emergency fund. Make sure that we have at least 6 months’ expenses as our emergency fund to cope with any upcoming unforeseen circumstances. If you have not set up the emergency fund then you need go through your saving accounts, investment accounts to identify the emergency fund sources. Understand where we can source the emergency fund? Is it fixed deposit, is it saving account or is it in the investment account? If the emergency fund is not in the bank yet, it is time to do some switching of the investments to lower risk assets to allow for any flexible withdrawal without affecting the investment performance.
Third, look for opportunities to refinance the long-term property loan. Currently, as you know, the OPR is low. Bank Negara Malaysia has reduced the OPR 4 times in the year of 2020 from 3% to 1.75%. If the loan has been taken quite a while, the interest could be high compared to what the banks can offer now. This can potentially reduce your monthly loan instalment. It is also possible to prolong your instalment period if you are young enough, this can reduce your monthly expenses too! For example, if you bought the property in 2010 at RM 450,000 and the loan amount is RM 405,000, loan installment would be RM 2350. After paying the loan installment for 11 years, the outstanding loan amount is RM 300,000. You can choose to lower the interest only by paying lesser installment by committing to pay in another 25 years’ time, loan installment shall be reduced from RM 2350 at 4.85% to RM 1,540 at 3.15%. In addition, if you need some cash, you might be able to cash out some monies from this exercise if the property you bought has increased in price. In the last example, the property value has increased from RM 450,000 to 800,000 in the past 11 years. One can choose to refinance it up to maximum of 80% of the property value to get some cash back. 80% of RM 800,000 is RM 640,000 and the outstanding loan is RM 300,000. In this case, one can choose to cash out the difference subject to the loan approval. However, make sure you are able to make good use of the cash out!
Fourth, learn and start investing. Investing is the way to grow wealth. If you are having some excess cash, make sure you don’t just save it in the bank. Start looking into investment. Currently, the saving rate is less than 2%. OPR has been reduced 4 times in the year of 2020. It is not enough to cope with the inflation. There are many ways you can invest, i.e. stocks, unit trusts, index funds, Real Estate Investment Trusts. Make your excess money works for you and your future will thank you for doing it now.
Fifth, create a second source of income stream. During lock down period, there are many opportunities online. You can consider learning a new skill to start create another income source for yourself. Since last year, I have seen many are selling things online via YouTube channel and social medias. You can turn your passion into extra income too. Do not waste your time, start to learn a new skill to help yourself during the lockdown period when you have saved so much time on travelling to office.
Remember, we cannot control what happen to us but we are able to do something to get prepared to the pandemic.
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