| Written by Norzuhaira Ruhanie |
| Wednesday, 21 January 2009 15:34 |
Masinah Abdullah, 48, gets most of her income from her small catering and baking business. The single mother of four also sews clothes and provides alteration services.
“Usually, my customers would ask me to alter new clothes but nowadays I receive many requests to repair and alter old clothes that are still in good condition,” says Masinah.
Although she works from home, Masinah is relieved that the price of petrol is going down but says she is still struggling to keep her costs down as she does not want to charge her customers too much for her catering services. She expects the next 12 months to be hard but her personal cash flow to see her through.
There is much to do this year, and strengthening your financial status is one of them. While Malaysia is expected to escape a recession, the economic situation is expected to stay tough and the challenge for all individuals would be in ensuring that they are not hit by a personal credit crunch.
Here are three areas to look at to stay financially stronger in tough times.
Review your goals
Financial experts say the first thing to do is review your financial goals and decide if you can stick with them or revise certain targets to suit your current needs. “You need to know where you are and where you want to get to. Taking the time to set challenging but realistic goals is vital,” says Rajen Devadason, a Securities Commission-licensed financial planner with MAAKL Mutual Bhd.
Rajen, who is also CEO of RD Wealth Creation Sdn Bhd, adds that long-term goals may remain unchanged but personal cash levels should be increased. He expects a “cash is king” environment in increasing measure over the next six to 15 months.
Ben Ng, a trainer with Total Financial Planning Advisory Sdn Bhd, says the decision to revise certain goals very much depends on a person’s in-flow of income, which, for many, comes from their jobs. “As an employee, you need to ensure that you are not easily replaceable, by improving your efficiency and multitasking to suit the company’s needs.”
When looking out for investment opportunities, says Rajen, take advantage of any sharp dips in the equity, bond and property markets to buy great assets that generate cash flow by way of dividends, distributions, coupons and rent. However, it is imperative that the buying is done largely out of current cash flow surpluses and not by depleting capital too quickly, he adds.
“If the crisis turns out to be longer than expected, say 18 to 24 more months, then savvy individuals don’t want to end up having to use up all their ‘bullets’ way too early in this downturn,” Rajen explains. “I believe that in the next 12 months, there will be a tremendous transfer of wealth from the impatient and the unprepared to the patient and super well-prepared.”
Spend less, save more
If cash is king, then you need to bring yourself into a stronger position. Reduce spending, work much harder to generate larger incomes and therefore get significantly larger cash surpluses, build large savings buffers and invest slowly and carefully over the long haul, says Rajen.
“Ways to reduce spending could include eliminating consumer debt by paying off all credit card balances and deferring any unnecessary lumpy purchases that are not wealth-generating… like a new car if the old one is still functional,” he says.
Indeed, Malaysians are continuing to save, according to MasterCard in a recent survey. Ninety-three percent of Malaysians polled said saving was important. The credit card company reported that one in three consumers in Asia is looking to save more than 20% of their income over the next 12 months.
Masinah says she has adequate savings for her family. “My eldest is now working, so he helps with expenses.” She paid off her home loan about a year ago and now uses the surplus money for investments in government-guaranteed savings certificates and unit trust funds. She discusses with her children ways to reduce their expenses and takes small steps such as building a compost pile, growing a small vegetable garden and replacing all the light bulbs in the house with energy-saving versions.
The goal, says Rajen, should be to “try and get to the point of being able to save and invest 40% to 50% of your net income, apart from EPF, which is forced savings and which should continue at the maximum allowable rate.
“The only way to create investment capital is to spend less than you earn and to carefully allocate your savings toward the emergency buffer, normal savings and well-chosen investments.”
Most Malaysians, says Ng, have been controlling their spending due to hikes in the price of many consumer goods. Look at avenues to increase your take-home income, he adds.
“See if you can earn extra income doing what you already doing, but in your own time. If you are a tax consultant, for example, you could ask your boss for a commission if you secure clients outside your working hours.”
Have your emergency buffer
Have been putting off building an emergency buffer? While it is always important to have one, uncertain times means it is all the more crucial. The fund, says Rajen, should be between three and six months’ expenses for an employee and six to 12 months for a self-employed individual. “If you don’t have the buffer in place, your savings allocation should go into an emergency fund until it reaches the target size, based on your circumstances.”
To ensure maximum safety, the money should “be kept super safe in bank savings accounts, fixed deposit accounts and money market funds that do not have any bond component,” he adds.
Project manager Mohd Azlan Masood Azlan has about a month’s worth of expenses in his emergency fund but he’s trying to get the level up to six months soon. He has been paring his credit card debt and plans to cancel cards that have yearly fees and move towards those that offer cash rebates and/or discounts in addition to rewards points. He is also trimming some of his investments in equities, although he may look into buying them should there be opportunities. He may increase his investment in unit trust funds, focusing on commodities and equities. “Being an investor who dollar-cost-averages, this is the time to buy, when units are cheap,” he says.
This article appeared in Issue 89 (January 2009) of Personal Money, the personal finance magazine published by The Edge Communications Sdn Bhd
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