3 Actions to Take to Mitigate COVID-19 Impact to Your Finances

It is common for people to be concerned about their finances even when times are good, so it makes sense that the current situation is causing people more stress.

Here are 3 things you can do today (whilst you are working from home!) to make you feel in control and ensure you can ride this situation out:

1. Cash buffers: are they enough?

  • Make sure you have enough money on hand to cover emergencies.

  • The rough rule of thumb is to have 3-6 months of living expenses in cash.

  • If you are worried about losing your job due to the economic fallout of COVID-19 then you want to be at the ‘6-month’ end of the scale.

  • If you feel that it might take you some time to find another job, and most of your monthly expenses are fixed, then you might want to increase your cash to 12-months living expenses.

  • If you are confident of not losing your job, then don’t hold excessive cash. Having 3-5 years worth of cash sitting in the bank might make you feel good but it will hinder your longer term wealth.

2. Clean up your expenses

  • Many people wait until there is a financial emergency before really diving into their expenses.  Don’t wait – start reviewing now.

  • Are there any monthly costs that you are paying out that no longer serve you?

  • I’m embarrassed to say that I did this last weekend and found a rogue monthly Singtel charge for $19 for a SIM card that I’ve never used, and I’ve been paying for it for 2 years!

  • Get a good feel for what is fixed and essential, and what could be flexed down or eliminated if you lost your job.

  • You will be amazed at how much better you will feel about your situation by just doing these first two steps.

3. Check what you are invested in:

  • The stock market is down c25-30% in the first 3 months of 2020, and its highly likely that your portfolio has done the same. It’s not beyond comprehension that this could fall another 10-20%.

  • The wise advice is to stay invested and not panic.

  • However, not all funds are created equal. The performance of some active funds is doing much worse than the general market.  This is not unusual as they tend to not be very diversified and therefore their YTD performance is skewed by a small number of stocks.

  • Not only could you suffer larger losses than the general market, but your portfolio also might not recover in line with the market either.

  • Now is a good time to assess what you have.  Is it a low-cost, market tracking based portfolio constructed using robust academic evidence of what works? Answering anything other than YES should be a sign that you need to review.

If you are concerned about any of the above points or aren’t sure how to independently assess your portfolio then email me and we can arrange a call to discuss.

This is an original article written by Max Keeling, Client Adviser and Head of Expat Division at Providend, Singapore’s Fee-only Wealth Advisory Firm.

We do not charge a fee at the first consultation meeting. If you would like an honest second opinion on your current estate plan, investment portfolio, financial and/or retirement plan, make an appointment with us today.

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