10 tips to survive economic downturn
November 17th, 2008 by ALVIN SOONG
1 Take stock of your cash position - This should be in the region of six to 12 months of your monthly expenses. This is anticipation of more layoffs and unemployment.
2 Home loans - In this high-inflation, low-interest-rate environment, one of the best things you can do is to review your debts and refinance wherever possible.
Prioritise and manage the Debts. Consider moving to a variable rate mortgage pegged to the three-month Sibor or Singapore interbank offered rate. This rate fell to a near five-year low of 0.89 per cent on Tuesday and was 0.95 per cent on Friday.
Central banks around the world are slashing interest rates to head off a steep recession, so short-term rates are expected to stay low next year. This means big savings for those on variable packages.
3 Credit card debt - With hard times coming, consumers should be wary about credit card spending and unsecured debts such as credit lines.
One way is to curb spending on non-essentials. Repay your credit card and avoid using it until your debt is fully cleared as credit card interests can be as high as 24%.
4 Consolidate your debts - As a guide, your monthly long-term debt commitments should not exceed 35 per cent of your monthly gross income. Take advantage of balance-transfer promotions offered with a lower interest rate to refinance your higher-cost debt.
5 Review insurance policies - In the press, it is advised that people ensure that their hospitalisation policies are in force as one cannot rely on your company’s insurance coverage, especially in a downturn, as the company may not always be there.An exception is if you have a portable medical plan that follows you even when you leave your employer.
Check if your policies still meet your financial objectives. You may want to discontinue them if they are no longer necessary. Otherwise, it is prudent to take a policy loan. This means you maintain your protection while you take a premium holiday. During this period, premiums will be deducted against the policy’s cash value so you still enjoy your cover.
6 Review your investment portfolios - It is very likely that many investors’ portfolios have suffered big losses with gains wiped out and even the starting capital reduced.
We should restructure the portfolio based on our own objectives, time horizon and risk appetite remain unchanged, Mr Lim recommends restructuring the portfolio to cater for more risk.
Also rebalance your portfolio in accordance with your investment-risk profile. A 60 per cent equities and 40 per cent fixed income portfolio would probably need to be rebalanced by selling one-third of the fixed income and deploying the proceeds into equities.
This discipline means you automatically buy cheap as equities now are at bargain prices with an average dividend yield of 4 per cent. ‘The economy and the stock market will eventually recover as global money supply is beginning to pick up in response to the aggressive central bank rate cuts.
7 Investment checklist – Do this:
1. Well diversified across asset classes, countries, sectors and stocks.
2. Practise dollar-cost averaging, which involves buying into the market via a fixed sum regularly so when the prices are low, your money buys more units. Over the long term, your portfolio will benefit as markets tend to trend upwards.
3. Enter only if you are willing and able to wait for the long haul. While stocks appear cheap now, he expects better opportunities next year as the negative sentiments are expected to weigh on the market.
8 Use of CPF top-ups - Enjoy tax relief on your income when you top up either your own CPF Minimum Sum or those of your immediate family members.
You can enjoy tax relief of up to $7,000 a year if you use cash to top up for yourself and/or receive cash top-ups from your employer; and an additional tax relief of up to $7,000 a year if you use cash to top up for your siblings, spouse, parents or grandparents.
Your siblings and/or spouse must have earned $2,000 or less in the preceding year to qualify for the tax relief. The giver can claim tax relief in the following year’s tax assessment.
9 Use the Supplementary Retirement Scheme (SRS)
Contributions to the SRS account bring income-tax relief. You can contribute any amount each year subject to a cap of $11,475 for Singaporeans and permanent residents and $26,775 for foreigners. Besides providing you with the discipline to save consistently for retirement, SRS gives an additional nest-egg on top of your CPF account.
Note that 50 per cent of your withdrawals from SRS is subject to tax at retirement. Withdrawals can be made over a period of 10 years. With lower or nominal income at retirement, you may end up paying little or no income tax.
10 Recession-proof your job - Be visible, go beyond your basic responsibilities, upgrade yourself and continue to network. Be a good performer
Summarised from Sunday Straits Times 16th Nov 2008
