“Preparing financially for a crisis”, as featured in StarBiz, The Star, on 7th March, 2020
The outbreak of the novel Coronavirus has forced many to think twice before stepping out of their homes into public spaces. Seeing how the death toll of the Coronavirus has officially surpassed that of the SARS pandemic in 2003, it is not a wonder that this is the case.
While making the conscious decision to take precautions and avoid certain circumstances surrounding the virus, I wonder how many have had the foresight to do the same to ensure their financial health is in order. Times of crises such as this has the potential to hit you hard financially if you are unprepared.
The fact of the matter is, outbreaks like the Novel Coronavirus are going to occur from time to time, with little to no warning. As the infamous saying goes, the only certainty in life is uncertainty. Failing to take the time to plan for these uncertain circumstances will only leave us more vulnerable in the actual event.
Let’s get one thing clear – Anyone earning a decent income should have a robust personal financial management plan. The definition of a robust personal financial management is the process of allocating your assets and apportioning your income to ensure that in all circumstances, there are financial resources to meet your financial obligations.
Many mistakenly think that financial planning is all about planning for your future financial milestones and your golden retirement years. However, a robust financial plan ensures that you will be able to bounce back from unpredictability, without your loved ones being left in the lurch.
If you have not spared much thought into your financial contingencies, it is a good time to start, considering the current circumstances. Even if the chance of you or your family contracting the Coronavirus is low, it is always wise to be prepared for the worst case scenario.
Here are some crucial areas to start, using the Novel Coronavirus as a reference point.
Conducting a Capital Needs Analysis
The worst-case scenario of the Coronavirus is death, although there have been no cases of Malaysian deaths from the virus yet (at the time of writing). Nevertheless, the fact that this pandemic is extremely contagious has us dealing with the uncomfortable notion of death.
Should you be gone, would your family be comfortable financially? Have you accumulated enough liquefiable assets and ensure enough insurance coverage to take care of your loved ones. How long would these assets last?
A Capital Needs Analysis can be conducted by any licensed financial planner, and will help you determine the amount of money that is required for your family to maintain their current standard of living. It is advisable to perform a Capital Needs Analysis to know where you and your family stands should something happen to your ability to earn.
Putting together a Will
While it’s important that you have planned enough for your family to live comfortably, it’s equally important that you draft out a will and update it regularly, every five years or so.
Putting together a will is important to ensure that your wealth is distributed as you intend it to be after you’re gone. Seeing that the Coronavirus is highly contagious, you may want to plan for an eventuality of a double tragedy, i.e. both yours and your spouse’s death. Are your assets accessible to your loved ones? Do your dependents and children have an appointed trustee and guardian? These are some of the bases you should think about covering to ensure your affairs are in order, even long after the Coronavirus pandemic is over.
Planning for possible Hospitalisation
In the event you contract the virus and require hospitalisation, how are you going to finance your treatment? Will your employer’s insurance policy cover you for this circumstance? If so, what is the cap on the coverage that is being offered?
Insurance companies in Malaysia have pledged to provide hospitalisation coverage and treatment to their policyholders during the Coronavirus outbreak. So if you have invested in personal insurance coverage, it’s perhaps a good time to check in with your agent to find out the benefits, the amount of coverage offered, and the terms and conditions that come tied with it.
If you haven’t opted in for your own private insurance, it is best to do so as soon as possible. The monthly premiums that you pay towards your insurance coverage is a small price to pay to protect your accumulated wealth. Without an insurance policy, you may find your savings depleted drastically when – touch wood – tragedy strikes you or your loved ones and you have to fork out lump sums of cash for treatment.
Support for Living expenses
Should you be hospitalised or quarantined during the outbreak, the next financial aspect for you to think of is your emergency reserves. This is extremely important for those of you who are self-employed or work in contract-based jobs where being incapacitated temporarily could mean you losing the source of your income.
How much emergency reserves should you be looking at and how long are you able to hold out using these reserves alone? By rule of thumb, you should always have at least six months worth of your living expenses stashed away for a rainy day, 12 months if you are self-employed.
The next question is, where should you keep your emergency reserves? Make sure that your reserves are tucked away safely, but is able to be accessed quickly and conveniently should the need arise. You do not want to be caught in a situation where you are forced to liquidate investment assets that aren’t mature, thus losing out on greater compounded investment gains.
A good way of storing your emergency reserves would be through a fixed deposit in a bank account that is easily accessible. Should this not be available, you also have the option of cashing in your life insurance policies, or using overdraft facilities as a backup.
Review investment portfolio
The outbreak has brought about much uncertainties to the economy and the global stock markets. Industries such as travel, retail and tourism have been greatly impacted since news of the virus broke. Nevertheless, health care, internet services and other sectors will stand to gain from the outbreak. And at this point of time, any news related to the successful containment of the virus and its eventual cure, would naturally trigger positive price reactions globally.
During these volatile times, it is important to step back and reassess your current investment portfolio (containing shares, unit trust, REITs or properties). By doing so, you can take action to protect your investment, or better still capture some emerging opportunities.
You’ll never know when misfortune will rain down on you – such is life. When it comes and you are unprepared, the effects can be disastrous to your net worth that you’ve worked so hard to build. Thus, the biggest favour you can do for yourself is to plan around these uncertainties.
While some reports have shown the stabilization of number of cases of the Coronavirus, lets take this outbreak as a reminder to review and prepare ourselves for unexpected financial crisis that such unpredictably can pose. Keep healthy and stay safe.
The article is featured in The Star Online too, at the following link: https://www.thestar.com.my/business/business-news/2020/03/07/preparing-financially-for-a-crisis
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