The pandemic is harsh on the economy and distressing to Malaysians. People are losing jobs or income due to business slowdown or closure. Financial hardship is inevitable.
In these challenging times, you must have financial management skills. There are ways to manage your finances. Here are five ways to help recession-proof your finances.
1. Downsize your lifestyle
Every penny matters when a recession hits. Since you can’t determine how long it will last, you need to downsize your lifestyle. Sacrifice or deprive yourself of the usual amenities in the meantime.
The time calls for conscious spending on your part. It will reduce expenses and leave more money to spend on necessities. You might even adopt this strategy after the health crisis when you get used to frugal living.
2. Create a recession budget
When you downsize, smart budgeting follows. Your budget should reflect the actual cash coming in and going out. Your available money could be from salaries and wages, savings, and investment income.
The money outflows are rent, utilities, groceries, transportation expenses, and debts. Once you create a budget, have the discipline to work around it and not overshoot. Account for every expense and identify where you can reduce your expenses more.
3. Seek other income sources
Malaysians have a penchant for taking up part-time work. During a recession, it would be advantageous to join the so-called “gig economy” to supplement your current salary or replace lost income.
Aside from online work, there are job opportunities in other sectors needing human resources. Demand for food delivery, for example, is rising. Some are already doing part-time work in food delivery or logistics companies. It might even be the start of a new career for others.
4. Use government cash assistance wisely
Households in Malaysia are receiving cash handouts such as the PRIHATIN Rakyat Economic Stimulus Package and PENJANA National Revival Plan. The amount varies depending on each individual’s income levels. Previous economic downturns did not require extra financial support or wage subsidies. The impact of COVID-19 is unprecedented.
If you were to receive the temporary financial relief for individuals, use it for its intended purpose. You won’t have to dip in your savings as you have emergency during the crisis. If you’re not cash-strapped, pay down some of your high-interest debts.
5. Do not obtain new debts
Obtaining new debts is one thing you shouldn’t do in a recession unless you are consolidating your debts. By merging multiple loans together with a lower interest rate can bring down your interest rate and in return help you to save more money.
However, a home loan, car loan or swiping your credit card, is not advisable when your job or earning potential is at risk. Pay cash if you can avoid using your credit card. You might not have enough to cover the monthly payments and save for retirement altogether.
The economy could still take a turn for the worse. You will be complicating your present situation and fall into a sinkhole. Taking on the additional financial burden in a recessionary environment is very risky. Your approach should be cautious because the worst-case scenario is bankruptcy.
Malaysia is on the verge of experiencing the worst economic recession in its history. COVID-19 has brought unprecedented damage to global economies as well as the disruption of everyday life.
The government’s response plan, the Movement Control Order (MCO), is most welcome to Malaysians. However, the RM250 billion PRIHATIN stimulus package and RM35 billion PENJANA national revival plan may help to ease the financial burden faced by families but not the economy. Thus, the more important for individuals to be financially prepared to stay afloat during this recession.
There are lessons you can learn from the 2020 pandemic. First, don’t take your job or means of livelihood for granted. Second, you see the importance of saving for emergencies. You can’t be over-dependent on the government. Lastly, sound financial management will help you weather a recession. We hope that you would find these tips useful to help you better manage your finances and survive through a recession.
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