This article is based on the assumption that the financial system will not collapse totally, which means you will still have access to your hard-earned funds or investments if you need to access them.

Here are some ways to minimise the financial impact that you may be experiencing during this difficult Covid-19 pandemic.

1. Set up an emergency funding

The first thing every single person or family unit needs is an emergency fund. In fact, this emergency fund should have been built years ago in view of an emergency.

Different people have different definitions of the amount that must be put aside, but it is recommended you save at least six months of your monthly expenses or better yet, six months of your monthly gross income (under the assumption that this is higher than your expenses).

The higher the amount means more money needs to be put aside, however, when emergencies happen like the current pandemic, you would have access to a bigger pool of funds that would help you last longer compared to those who have not prepared their emergency funds.

Just a side note, your emergency fund should be stashed away safely in the highest dividend yielding account that will be reduced by any losses due to market conditions. Examples would be ASB, Tabung Haji, Fixed Dividends, etc.

Another point to ponder, the funds should be liquid or at least near liquid, as you will need to be able to access it quickly and easily in the event of an emergency.

For a business owner or entrepreneur, separate your business emergency fund from your personal emergency fund.

You should ensure that you have at least a few months of operational expenditure for your business put aside in case you are ordered to close shop, similar to the current situation.

2. Review your budget

The more you can reduce your budget, the longer the money you’ve set aside will last. Cut unnecessary expenses as you should be on survival mode during an emergency.

When an emergency actually happens, stick to your prepared budget and do not overspend because of panic buying. Going over budget will only put you at risk.

3. Get protection

Do you need protection like insurance or takaful in order to prepare yourself in the event of a pandemic?

Having some protection helps. However in this case, your standard coverage will not help you, assuming that you don’t die or don’t succumb to the illness.

If you are hospitalised, then a hospital income benefit coverage will help especially business owners, and/or gig workers.

For salary earners, if you do have the extra income, you could also take up similar coverage, as it never hurts to be prepared.

If and when there is protection for loss of income (for companies or individuals) available in Malaysia e.g. similar to the Employment Insurance Scheme (EIS) under Socso, it is advised to take it up as soon as possible.

What about investments?

Your investments should be medium- to long-term in general. It is normal for changes in market conditions to affect your portfolio in certain markets.

However, if you have a well-designed portfolio with strategic asset allocation to weather different types of market conditions, you should be prepared for most changes in the economy with the exception of the total failure of the financial system.

What should you do with regard to your investments in the current situation?

• Keep adding to your investments regularly. Not lump sums as you do not know the “bottom” right now. You’ll reap the rewards on the way up if you believe that in the long term, the market will recover.
• Do nothing and hold your positions. If you had done proper asset allocation, and had your emergency funds stashed away, the current situation will not impact you as badly as if you didn’t have emergency funds on standby.
• Switch to lower your exposure. For those who are spooked and have a lower risk profile, this would be action that you would take. Just be mindful, that if you don’t switch back on the upswing, you might lose out in the long run.
• Realise your losses. Cut bait. If so, take note that maybe exposure to the market was never right for you in the first place.

Conclusion

While nobody would like to be in this situation if they can help it, it never hurts to plan. Those who fail to plan, plan to fail.

Take care everyone, and remember to stay at home, so that this period of uncertainty is not prolonged and creates more stress not just to your personal finances, but the finances of the country as a whole.

This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.