Three Starter Tools to Build Financial Resilience

KUALA LUMPUR – Every crisis may seem insurmountable, especially when finances are at stake. If you are facing challenges now, take this opportunity to build good habits and work towards a stronger financial resilience. With a sound financial planning, newly adopted habits can carry you through the ‘new normal’. A better relationship with your money can lead to more informed decisions, less stress and overall better quality of life.

HSBC Bank Malaysia Bhd advises Malaysians to be conscious of their cash flow, build their net worth and not lose sight of the importance of health in building their financial resilience.

Here are the three key tools HSBC Bank Malaysia to start building financial resilience:

1. Be conscious of your cash flow

Positive cash flow is a key indicator of financial health and independence. During an economic downturn, unexpected circumstances like job losses or pay cuts can affect your cash flow. Look at your daily spending for the last three months and analyse your spending pattern. If you do not track your expenses regularly, start with the line items on your monthly bank and credit card statements and categorise these by priority. This short-term financial minimalism approach can help you manage your money better.

Plan a spending budget: Start by practicing a ‘minimum spend’ month or week. This is when you only buy pre-agreed essentials to save money and pay down debt or save for a goal. With many restrictions still in place during this pandemic, take this opportunity to cut back on discretionary items, entertainment and travel. Allocate these savings for child care or medical insurance.
Tailor your lifestyle: Reassess what truly enhances your quality of life. Make deliberate decisions on what luxuries or extras you can afford and dedicate the rest to savings or debt repayment. With better control of your spending, you will have more freedom and options to better prepare for future uncertainties.
Financial spring cleaning: Go further than just cutting your variable expenses, and
analyse your fixed expenses. In the current situation, there are still opportunities such as money spent on inflated fees, vehicles, or services you are not actually using. Every year, analyse your expenses and cut costs where needed.

2. Build your net worth

Your net worth is the difference between the value of what you own – house, retirement funds, investment accounts, checking account balance, savings – minus liabilities such as credit card debt and personal loans. Net worth is an important number to keep in mind as it can help you determine just how much your debt can affect your future wealth, as well as highlight the areas you should focus on before retirement. The goal is to gradually reduce your liabilities.

Know and prioritise your debt: Debt generally creates expenses as opposed to assets that create income. Debt can have a crippling effect in a volatile market. If you have monthly payments going out, try to optimize your debt portfolio by paying off your debt with the highest interest first. For most people, that would be credit cards, vehicles and renovation loans. There are many relief rates being offered currently on debt, so moving to a more secured form will take the pressure off your cash flow.
Make use of your assets: Generally, your assets can provide a steady income flow such as property rental or help reduce your cash outflows such as savings on home rental. Assets can provide greater flexibility, especially in times of a crisis.
Build an emergency fund: This should ideally include cash that you can draw upon to meet your basic expenses for at least 6 months. It is a safety net that can provide great peace of mind, help to reduce stress, buffer spiralling debt, and empower you to take on new opportunities.

3. Stay positive: Health is the ultimate wealth

With good health, people can make better financial decisions. The stress caused by crisis can lead to unsound decisions and has an adverse impact on health. While wealth is important, one must not lose sight of the importance of health.

Health protection: Being prepared is the key. Ensure you have adequate life insurance cover to maintain a good quality of life for your dependents or to cover liabilities in the future. The premium for term insurance is lower when you buy it at a younger age, and it remains constant for the entire tenure.
Create a living will: A will is a document that speaks for you after you pass on, but a living will can be just as important. Communicating your wishes by creating a living will, including your treatment preferences for life sustaining measures is a good way to make sure your choices are heard in times of need.
Personal health is the most important asset: A crisis can help us focus on what matters.
Start focusing on a healthy way of living. Reprioritize your health goals, making mindful
choices around diet, exercise, meditation and even, new hobbies. Investing in your
health will offer you some of the best returns.