Welcome to Your Money and Covid-19, a series about how to safeguard and future-proof your finances in an uncertain time.
In the age of Covid-19, people are understandably worried about job security, with some experts estimating that the resident employment rate in Singapore will rise from 3.2% at the end of 2019 to 4.2% by the end of this year. Those who manage to hold on to their jobs may also take a financial hit because of pay cuts or having to take no-pay leave. That is why it is perfectly understandable that having more liquidity may now be a priority for many. Here are some ways to free up cash without putting yourself in an unnecessarily precarious position.
1. Consider refinancing your mortgage
With the interest rates for floating home loans at their lowest in years, refinancing your mortgage now might free up some cash that could go towards paying off other bills or liabilities. However, I would caution against making a hasty decision to refinance without first doing your homework. Before making the switch…
· Check if the bank will allow you to borrow the full amount of the remainder of your loan. If you work freelance and have unstable monthly income or have had your pay reduced recently, the bank may only offer to loan you a certain percentage of the remainder of your loan. Also, if you’re a freelancer, you need to be prepared to produce two years’ worth of documentation as proof of your financial health.
· You need to have full confidence that you won’t change your mind down the road if you’re currently servicing a HDB loan. You won’t be allowed to switch back to a HDB loan after taking a bank loan.
2. It is not wise to cancel any essential insurance at this point
I understand that paying for insurance can feel like a burden, especially if you are still young and healthy. But I would advise against cancelling your hospital insurance under almost any circumstance. Why? First, you never know when you would need it. Second, the terms of the hospital insurance you are paying for now are based on your current state of health. Cancelling your hospital insurance now may lead to a higher chance of you being rejected for it should you want you reapply for it in the future, especially if you were to develop chronic health conditions later on.
3. Reassess your needs and wants
There is no time like the present to start drawing up a balance sheet of your monthly spending. What are some of the services you are paying monthly subscriptions for but never use? Now’s the time to cancel them. Have a car and strapped for cash? Now’s the time to sell it. In Singapore, at least, a car should be the first to go if you have more pressing financial commitments to take care of – not least because it is convenient and cheap to get around in Singapore via public transport or taxis and ride-hailing services. Do not hold on to an expensive, depreciating liability because you regard it as a status symbol.
Finally, if you are among the fortunate group of people who still have stable jobs in an uncertain time, you might think that it is a prudent strategy to save more of their salaries in the bank. While I believe that emergency funds are crucial – you should ideally have between three to six months’ worth of cash stashed away to keep you afloat during rainy days – putting too much money into your savings account can be counterproductive. With banks slashing their interest rates, you will be getting far less bang for your buck. Considering that inflation rates are typically between 3-5%, it means that the value of the money you have tucked away in savings will be worth less and less over the years. The least you can do with your money is to hedge it against inflation by making voluntary contributions to your CPF. Besides allowing your money to grow at a decent rate, you will be able to save on your income tax next year!
If you are wondering what else you can do with your extra cash, click here to read about why I think now is a good time to buy equities, or speak to me about how you can grow your money.
About me: I am a financial consultant from an independently owned financial advisory firm with over 13 years of experience in the financial services industry. I am a Million Dollar Round Table qualifier for the years 2016, 2017, 2018, 2019 and 2020. I have an interest in helping groups of people that are currently underserved by financial consultants, particularly LGBT+ individuals and those working in creative industries.
Disclaimer: The viewpoints expressed are my own and do not necessarily reflect the opinions, viewpoints and official policies of finexis advisory Pte Ltd.
