(Don't) Wake Me Up, When September (Loan Moratorium) Ends
Year 2020 has been a year that show us ‘why bother to plan when all plans can go chaos’.
But at the same time, if you have done some work on your personal finance, you might be in a better position to ride through this chaotic year that is so unprecedented. Never for once that we get to see countries get shut-down, that if you go outside your house for the wrong reason you might receive a hefty penalty from police.
Loan Moratorium
Also, never for once have we been given a honey moon on servicing our loans. But from the onset of MCO, there was a 6 months loan moratorium given to borrowers. In short, we get to take a break from honoring our loan commitment.
“If you really want to know how precious rain is, ask the desert.”
Likewise, if you really want to know how precious a 6 months loan moratorium is, ask people who are burdened by loan repayments. I have seen people who took this chance to shore up their savings, for some, this is the first time they manage to have savings, and they were glad they could do so.
The thing is, all good things tend to come to an end. What’s more, this is just taking a break. When September ends, loan moratorium will also end. Time to deal with the reality. Are you ready for it?
What If You Still Can’t Shoulder It?
You can still apply to have loan moratorium extended to you. Provided you are affected by the ongoing pandemic situation. With that being said, you should contact your lender as soon as possible to iron this out. Some lender has announced that they will offer advisory services for borrowers who are affected. While other banks have come out to urge borrowers who are deeply affected to engage in a discussion. Don’t let go of this opportunity. You deserve to get help, not struggle silently.
If you are not sure you are able to get through without help, below some guide for you to deal with your situation after September 2020.
Cashflow is crucial
Before this pandemic, cashflow is very crucial for the health of our personal finance. During the pandemic, and after the pandemic, cashflow will still remain crucial to the health of our personal finance.
For us to be in control over our money, we have to understand very well how we earn our income, and how much we get to bring home. Take out a piece of paper, write down your gross income, and take away those deductions like contribution to EPF, PCB etc. The balance is what you have to plan for your lifestyle, as well as your future commitments.
Acknowledge that number as the maximum resources available to you. This is the time to get serious about separating what you want to have, from what you need to have (until your situation has markedly improved). In order to give yourself a peaceful mind and able to focus on living your life well, you got to ensure your cashflow situation is within your control, not out of your hand.
If your income has suffered a drop, you might have to review how you can stay afloat by working on second income stream, or how you can liquidate or withdraw from your other asset. One thing to note, if you have not already known, you can withdraw up to RM 500 a month from your EPF account 2 under i-Lestari; make tax-exempted withdrawal from each PRS provider up to RM 1,500 per provider, but you got to apply not later than 31st December 2020.
Alternatively, you can also take financial stock and check what assets you have that could provide you cashflow over this difficult period until your income situation recovers. Example, your cash bonuses in insurance, cash values in your investment-linked insurance, selling off some of your pre-loved items, work for additional income, among others.
In order to ensure you are able to have control on your cashflow, one of the most effective way is to not mix all your money into 1 single account. That would be like few people sharing a plate of food. You will risk having your portion over-eaten by someone else. Separate your day-to-day expenditures account from future savings account, and from your emergency fund account.
A budget is your ticket to stay on track
People usually look at budget as something that takes our lives away. But the truth is, a budget is what we need to help us stay on track, to not lose focus, to not give in to temptations such as the push notifications you get for 9.9, 10.10, 11.11, 12.12 sales.
Usually, people have difficulty sticking to a budget because we do not know the reason we are doing so. If you want to ensure you can take control of your cashflow situation, you do not need more income, you need to have a spending plan.
You do not have to restrict yourself to have no fun in life. You can use a budget to help you spend not more than 90% of your net income, or less than that, depending on your personal choice. The thing is, you got to be honest with your situation. Because for each ringgit you spend, you won’t be able to save it for future use anymore (unless you are investing it for potential future income).
Give every ringgit you earn a mission. Similar like how we manage our time, if we do not plan how we use our time, we will be at risk of wasting our time over meaningless activity. Likewise, if you given your money a ‘task’ or ‘mission’, this money will be allocated towards that particular use. This reduces chances of you overspending your income on something not important or planned, only to need to break your savings to pay for what is really important later.
Emergency fund
If you do not have adequate emergency fund, your life will not have fun (as in sustainable fun). There are many issues that can happen each day, some days, we have all the ‘oh yes’ moments, but some days, we get to frowned or cursed at those ‘Shxx’ moments.
There is really no universal rule on how much emergency fund you should have kept. But you need to at least be able to cover a few months of expenses, or even more. If you are very concerned and want to be safe, you may also want to have enough money to cover your important liability in the event something really bad does happen, such as if you were to lose your job.
One of the lesson people should have learned earlier is that their emergency fund should be kept at somewhere very accessible, that you can have the cash whenever you need it, and you do not have to worry about losing its value. If you park your emergency fund in stock market, or into any other investment that could potentially suffer a drop in value, then you may have emergency on your emergency fund, and this is really not fun at all.
Oh yes, can you treat your credit card as emergency fund? Yes, if you have prepared emergency fund in cash, then you may use credit card as a mean of convenience. No, if you do not have the actual cash, but plan to ‘unlock’ your credit limit to buffer your emergency. While it may solve your emergency, it could also be the beginning to another financial crisis for yourself. You should count on yourself to really prepare real emergency savings, not count on your credit limit, for that is not really your money.
Debt matters
As you prepare to step back into the reality where we have to service our loan, bear in mind if you do not first have a plan, you may be made to accept any plans offered to you later which may not be what you want.
Now, is the perfect time to plan on how to ease into life after September. First, list out all your loans, its amount per month that you are required to fulfill. Check on this number against your budget. If this remain too much, you will need to seek help on how to deal with these loan repayments.
If your income situation has seen a change after pandemic, and your loan commitment become too heavy for you to shoulder now, you need to have a plan on how to eliminate these loans. But you need to start with understanding what kind of loans you have, as well as your cashflow situation.
There are Licensed Financial Planner who have experiences in helping clients to deal with this situation and transform their life. You can also consider Money Transformation Program. It has worked for many and helped them to take control over their debt.
Your Income Stream
When it comes to investment, people often preach the idea of not putting all eggs into one basket. When it comes to our income, are you focusing only on a single income?
Try to explore ways for yourself to create a second stream of income (at least). Do not just rely on a single income stream, as it will leave you susceptible to being victimized by circumstances.
There are many ways for us to create income. Some requires risk-taking on our financial resources, some requires risk-taking on our time resources, while some require you to take risk on your ‘face’. But no matter what you try, you should know what is the reason you are doing it.
If you are planning to start a part-time work, a side business, try not to base your decision over the income reward, but have the decision centered around your personal values, and your passion. That way, you will have a fatter chance to stick through to your plan in the face of challenges which are bound to happen.
You still got to have a Plan
While it is true that our planning may fail because we cannot rightly anticipate all the events that could wreak havoc to it, we should not give up having a plan.
Your plan can work in your favor, if your plan has been stressed test. This means you would have prepared for a worse situation for it to pass the stressed-test, and it still beats not being prepared.
Just think about it, if a person who lose his or her job during this challenging period has not prepared any emergency fund because the life motto is “live for today, let tomorrow worry about tomorrow”, as opposed to another person who suffered the same but have saved a 6 months emergency fund, who has a better chance of getting through this period without going through tremendous amount of stress and huge stretch on mental well-being?
Alternatively, if you took multiple loans before this just because of pure optimism that you could rent your properties out, you could be in for a serious trouble now. Before you say it is unfair to use property as an example, you can also change the word property to any investment that is speculative in nature. The lesson is, if you are not careful, you will probably end up with more bad debts than good debt.
It is saddening to read from news how the current situation has forced people to even end their life, or how new-born was found abandoned, etc.
