Financial
tips for the family to handle expected tough times
 By Jagdev
Singh Sidhu
IN July, families were wondering how they were going to make ends meet once
the price of petrol bolted to RM2.70 a litre. The fuel hike caused prices across
the board to surge and people had to redo their budgets to cope with higher
costs.
The days of budget adjustments, sadly, are not over. In fact, things are
taking a more serious tone. The subprime-induced US recession is now wreaking
havoc throughout the world and families are now bracing for tougher times.
Job cuts, wage freeze and cost-cutting measures have accelerated as companies
are being hit by what many consider to be the worst economic downturn since the
depression of the 1930s. This also has an effect on families, especially when
uncertainties might surround the job security of a family’s breadwinner.
“Some readers will definitely be retrenched in 2009. While it is likely the
total number of unemployed in Malaysia will be relatively low compared to those
now losing their jobs in the developed world, to the affected that will be no
comfort whatsoever,’’ says Rajen Devadason, a licensed financial planner with
MAAKL Mutual Bhd. He is also CEO of corporate mentoring consultancy RD
WealthCreation Sdn Bhd.
“Therefore, it is crucial that while there is still viable employment,
household breadwinners decide now to adopt a well-thought out budget that will
help them preserve cash.’’
While there is limited room to cut expenses for most people, Devadeson says
what is often more pragmatic is to simultaneously try to increase sources of
income.
His four ideas are:
- Utilise EPF’s Account 2 options to reduce the principal sum outstanding
on existing home loans. If possible, pay off the home mortgage as fast as
possible.
- In homes with multiple cars, consider selling – quickly – any extra
vehicles. If the older cars which are fully paid for are still in reasonably
good shape and capable of running safely for at least another three years,
then it makes sense to keep those and to sell the newer cars if doing so
generates sufficient cash to pay off the existing hire purchase loans.
- Encourage teenage children to work around the neighbourhood by doing
chores for cash. Urge them to contribute their added earnings into a family
pool to build up cash reserves.
- In single breadwinner households, if the children are old enough to fend
for themselves, having the traditional caregiver, usually the wife, also
join – or rejoin – the workforce will be helpful in increasing cash inflows
into the family coffers.
“Whatever unutilised additional cash flow generated should be channelled into
a safe interest-bearing bank account or into a money market fund to build up an
urgently needed family cash reserve buffer,’’ says Devadeson.
There is chance that the number of available jobs in 2009 may contract and if
getting additional employment proves difficult, Devadeson suggests that people
start a small family business.
“In really tough times, common options include running a food stall, washing
cars, baking and selling cakes and cookies, cleaning houses, gardening and
giving tuition,’’ he says.
He adds that many people will find such viable cash-generating options
beneath them but such pride is something to be dispensed with during the tough
times.
“Also, unnecessary expenses need to be slashed before doing so becomes
unavoidable because of a job loss. That way extra cash can be channelled into
savings even while normal income continues,’’ he says.
“As savings grow, the option to judiciously invest in ever cheaper
cash-generating investment assets as the economy worsens will rise. Eventually,
doing just that will plant the seeds for long-term future family prosperity in
2010 and beyond.’’
Abacus Advisory Sdn Bhd founder and
CEO Carol Yip says the upcoming lean times will be an opportunity for
families to take stock of what they have and to make substantive changes.
Yip says a family is like an organisation in which each member has an
important role to play, and families should sit together and discuss any
financial issues they face. “This can be used as a chance to educate your
children and set financial goals for them,’’ she says.
Yip also says simple cost-saving rules such as switching off lights, cutting
down on electricity and Internet usage could be set. “Families can use the money
they have saved instead of their bonuses to pay for their next holiday,’’ she
suggests.
She says parents have to lead by example, and practise what they are telling
their children. “Action and behaviour is as important as words,’’ she says.
Another important advice is that both parents have to be on the same page.
There is no point in one parent making the sacrifice while the other is out
buying a second widescreen TV for the house. “Both parents must have common
goals in savings and cost-cutting,’’ she says.
The fastest way to save as a family is to look at the activities the family
does together. If a family goes out often to have expensive meals, a fast way
would be to cut back on that.
The next tip to parents is to reassess the children’s extracurricular
activities. “If parents are sending children for, say, piano lessons for the
parents’ own fulfilment, perhaps they might want to reconsider if the child does
not have any interest in pursing learning such an instrument,’’ she says.
A sensible thing might be for the non-working parent or an existing parent to
take a second job should finances take a dip, but Yip says that might not be so
easy. Firstly, a downturn means fewer job opportunities. And if one were to find
employment, it could have an effect on family ties.
“It depends whether children are understanding or not. Some might feel more
appreciative of the sacrifices being made by a parent to support the family,’’
she says.
Other issues will revolve around providing medical care for aging family
members and a downturn might mean seeking cheaper but not necessarily lower
quality heathcare.
“Family members also have to be aware of the current state of financial
affairs in order to make a decision on what to do when an emergency arises,’’
she says. |
