In a recent South China Morning Post report, analysts interviewed stated that a global economic recession is almost guaranteed in 2020 thanks to the worldwide Covid-19 pandemic. This comes as no surprise considering how the outbreak is making its way through Europe and the U.S.
Closer to home, foreign affairs minister Vivian Balakrishnan recently mentioned in his CNBC interview that the economic effects from the outbreak may last for at least a year.
As news of the economic downturn continues to spread across the world, it can be depressing and often times, might trigger anxiety in some. If you’re concerned and thinking of what you can do to get yourself and your family through this pandemic, here are some tips.
A fundamental aspect of managing one’s personal finances is creating a budget. Regardless of your financial circumstances, it is important to save at least some money each month for an emergency savings fund. For many, this will require assessing spending habits and cutting out some unnecessary expenditures.
Typically, experts recommend accruing three to six months of living expenses worth of savings. This way, if you have a significant unexpected expense such as a medical procedure—or worse—temporarily lose your job, you’ll have money to tide you over until you get back on your feet.
When it comes to choosing a bank account for your savings, it is important to note that not all accounts are created equal. For example, the best savings accounts have interest rates that are two to three times higher than those of other accounts. Therefore, if you are looking to earn the most that you possibly can from your savings, it’s worth comparing the best rates currently available.
It is also important to keep in mind that your emergency fund should be a separate category of savings than your other savings (e.g. retirement, home purchase). To avoid future disappointment, it is important to keep these funds separate in your mind.
If you currently have outstanding debts, such as a personal loan or credit card debt, it is best to pay down your balance before you find yourself in a pinch. Even committing to slowly repaying the debt is better than letting it continue to accrue interest.
For example, credit cards typically charge approximately 25 per cent p.a. on average, so it is crucial to reduce your monthly rollover balance before you have any added financial pressures.
Debt consolidation plans can be a good way to consolidate your outstanding debt, all with a better interest rate. If you’ve got debt which you could repay within a year, you might be better off with a balance transfer loan, a similar product which typically offers interest-free periods of up to 12 months.
It can be scary to watch your portfolio’s value fall significantly during times of market unrest. However, unless you are planning to retire very soon, there is no reason to panic.
Historically, while periods of volatility are not uncommon, stock markets have traditionally shown strong growth in the long-term.
This is especially relevant for those that invest in funds with retirement target dates. If you are the type to invest in individual stocks and bonds on your own, it is important to maintain some level of diversification in order to blunt the impact of a crash.
If you’re already on top of your budget, savings and investments, and want to take some other action, you might want to consider picking up a side hustle. Perhaps you have a car and some free time, and would make a good part-time driver.
Or maybe you have highly sought after skills such as web design or copy-editing and could earn an extra buck on sites like Upwork, Freelancer or Guru. Regardless of your specific skills and experience, you might be able to earn some extra money and peace of mind while markets remain volatile.
The bad news about a stock market crash or a recession is that your personal finances could take a hit. The good news is that if you are prepared, you will be better able to sustain an economic downturn.
Creating or re-assessing your personal budget is a great place to start. Once you’ve got a handle on your spending, reducing your debt and optimising your investing strategies are good things to address.
Regardless of what actions you deem most important for your personal finances, it is best to stay calm and protect your future finances by acting with prudence.
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Text: William Hoffman/Value Champion