Economists and market analysts have been discussing the possibility of a recession-like situation due to Covid-19. While we don’t encourage you to jump to conclusions, it’s always a good idea to make sure your finances are ready for any unforeseen situations in the near future.
So what can you do to future-proof your finances? You can start with these 3 financial management tips to get your money in shape and ready for any interruptions.
Save at least 6 months’ worth of emergency funds
Most economic slumps last at least 6 months, with the most recent U.S. recession in 2007 lasting 18 months*. If you can, try your best to save as much as possible to weather a long drawn out recession, but 6 months of household expenses is the minimum recommended amount to set aside for emergency funds.
Importantly, make sure you’re earning compounded interest on your savings. This magical little feature appears to miraculously multiply your wealth day by day, but what it really does is snowball the interest you earn. Here’s a list of savings or investment products that compound interest. You can also opt to save money in accounts such as fixed deposit accounts.
Also, remember that your savings should be differentiated from your emergency fund. You don’t want to be caught in a situation where you have to pay the bills during a recession and pay for an emergency operation, so keeping your savings and emergency fund separate is ideal.
Explore the gig economy
One thing that the coronavirus has shown us is that essential work is the most resilient sector of the economy. Food and grocery deliveries are not only surviving, they’re thriving! As e-commerce proves to be the only way to continue business during a pandemic, perhaps you should try it too. After all, one way to future-proof your finances is to ensure that you have a steady stream of income coming for years to come.
You don’t need to start selling products online, but you can try to market your skills and look for part-time gigs. Online tutoring, freelance work and home food delivery are areas to explore for potential side gigs.
Build up an investment portfolio
Passive income is a great insurance against a recession. What better fallback than a pool of investments that turns into a regular profit? Of course, investments are not foolproof. Return on investments can be affected by an overall economic slowdown, or poor judgement.
But a well-balanced portfolio with diversified risks could prove to be a boon during a recession when the security of jobs or income is uncertain. If you’re not sure how to start, you can talk to a financial planner, and also check out our customised financial solutions from CIMB F.I.R.S.T.
With these recession-proof strategies, you can at least lessen the burden any future downturns may have on you or your family’s financial security. If you still need more help, here’s what you can do to get quick cash in the short run.
Let’s hope that with the COVID-19 government stimulus package and financial support will be enough to avoid a full-blown recession. Meanwhile, practice social distancing, stay home whenever you can and strategise your finances.
This article is brought to you by CIMB as part of our ongoing efforts to raise the level of financial literacy among Malaysians. Financial knowledge and understanding are key to making well-informed and meaningful financial decisions that will improve all our well-being. This, in turn, achieves CIMB’s purpose of advancing customers and society.