We can lose our jobs and income at any given moment. If there is one great financial lesson this pandemic should teach us, it is uncertainty. We can never say what could go wrong? Anything can happen.
So, as the adage goes, “By failing to prepare, you are preparing to fail.” Moving forward, here are five ways you can do to crisis-proof your finances.
- One, Build an emergency fund. An emergency buffer fund is cash put aside for cases to mitigate adverse short term effects of a crisis. A crisis can be death, unemployment, disaster, or illness. Experts say, 3-6 months’ expenses set aside as a buffer fund is a good start. Three months for employed people, and six months for business people would be enough to recover from a loss of income while you are finding work or recovering from a business loss. You don’t want to be unprepared in times of crisis, especially if there are people who depend on you.
- Avoid Debt. Financial obligations can change your priorities. If this happens, amortizations, bank loans or credit card purchases, would come as the top priority, and can compromise your finances. You don’t want to be stuck paying your debt first before buying home essentials.
- Protect income and assets by risk transfer. The biggest asset we have is our ability to create income. We can protect our income by buying life insurance. You don’t have to be a believer in insurance. After all, it is not religion. It is just risk management. You only pass the risk to a company who can afford to pay. For example, you can’t afford to lose income, can you? It’s a risk we take every day. Death, disability, and disease can strike anybody. The question is, can you afford to get sick? Can you afford disability? Can you afford to die? Of course not. The good news is an insurance company can afford it.
- Diversify portfolio. Spread your eggs. Should I say, spread your geese? Check your assets. Where have you invested them? If you have heavily invested them in a particular company or market sector, think again. You could see a plunge in your assets and may not be able to recover them quickly. However, with a diverse mix of assets, where some investments may not fare well, some may increase in value. There is wisdom in diversification.
- Develop multiple income streams. A stable source of income is good. But, there is perfect sense in side hustles. Side hustles could be freelance work, direct selling, or part-time jobs. It can also be an income from investments or real estate. Having multiple income sources can soften the fall of the financial impact on your family from losing one income source.
The sooner you take action to crisis-proof your finances, the better. Who would have thought that because of this pandemic, the world will be on a standstill? Well, here we are. Most people lost their sources of income, are kept inside our houses for who knows until when. Now what? As a financial consultant, here are simple ways you can do.
- Assess your current situation. How much cash do you have? How long will it last you and your family? In case of disease, how much critical illness coverage do you have? Do you have HMO? Knowing where you currently are financially is the first step to realizing your needs.
- Talk to a trusted financial consultant. Financial Consultants are like financial doctors. They take a look at your overall financial health, and will give recommendations in areas that need fixing. By the way, those are just recommendations. It is still up to you to take action.
- If you currently have a financial consultant, this is the best time to sit down with him or her. Since we are still under enhanced community quarantine, take advantage of the time you have. Review your financial plans, insurance coverages, and portfolio structure. Remember, do not go out of your house. Do reviews online.
- Act now. Times will always be uncertain. Who knows how much time you have left? The best time to make a plan was yesterday. If you haven’t yet made a plan, you still have time today. Tomorrow is not yours, as my teacher told me. All we have is the present. Premiums increase as you age. Time should work to your advantage. Time is of the essence, so don’t waste it.