Market is uncertain and many analyst stated that there will be a recession in the 1H 2023 but some say the recession is here. What we felt and care as an individual is that our money disappearing at a very fast speed now due to inflation. Increase in bank interest rate directly and immediately impact individuals with variable rates mortgages with bank, resulting to lesser cash they can spend in other things.
As for business owner, higher interest rates means higher borrowing cost and lesser investment, hence fewer jobs created and lower wages. Lower wages means less money for household spending and reduce consumer confidence.
As for individuals, we might be wondering ‘Where should I cut my spending’? Should I reduce my meal consumption and selection, cook on my own instead of eating out, reduce or totally cut my entertainment and so on.
Regardless whether you are an employees or a business owner right now, one should sit down and review your net worth. How much exactly did I spend every month and how much monthly income did I bring home ? Did I overspend all the while? Do I save every month as an emergency fund? Do I invest every month to create my own snowball?
How do I review my expenses ? Expenses can be categorize into fixed and variable expenses. Fixed expenses includes mortgages, insurance premium, child education, utility bills, phone bills, transportation, and meals. Variable expenses includes house and car maintenance, clothing, entertainment, dining out, family trips and lifestyle expenses. Review your monthly commitment / expenses to see which area of it that you can minimize. For example, if you think you are paying too much for your insurance, talk to a financial advisor to help you to review it. Is of no surprise that you can reduce the premium paid with an increase protection and this excess fund can be channeled to other financial areas of concern. Besides, have you really maximize your tax saving or are there any areas of tax saving that you might lose out?
In contrary, review your salary / income, is it growing faster than current inflation? If not, what else can you do to increase your total salary / income? Multiple source of jobs, side hustle or invest your money earned. Makes your hard earn money works harder for you than just let it sitting lazily at our bank book.
One would argue that there’s investment in risk. No doubt, Yes but in fact everything we do in our life, we also taking risk. Frankly speaking, looking at the inflation rate running up the hill every year and now by every quarter, rising in medical cost and with the technology advancement, we tend to life longer, we have no choice but to invest and need to invest wisely. What we need to do, is to understand the risk involved, are we comfortable with the risk we intend to take and how can we mitigate or lower the risk. Just imagine, how is our income going to cope if we just let them sit at saving or fixed deposit alone?
When we invest in this market volatility, especially in equity markets, identify and picking up quality company is essence. Company with strong moat and able to pass down cost to customer is added point. Besides, don’t put all your eggs in on basket. Diversify your investment portfolio. Have a basket with different asset allocation that match with your risk profile. In this uncertain market, it is best to apply ‘Dollar cost of Averaging’ to reduce your risk, do not invest at one go.
Every investment have their pro and cons. Take for example, investment in property is known to be good because its value appreciate over time. But property investment is known to be illiquid too. If you are eager to convert your property into cash, it takes longer time. Whereas, if you place your money in fixed deposits, is very liquid but it gives the lowest return.
For every financial decision that you make, I’m sure you have your own goals you want to achieve. Recalled it and set a timeline to achieve it. Sometimes a goal without a timeline takes years to achieve or worst case, we may fail to achieve it or give up on it. Review your goals quarterly or yearly to make sure you are on track.
I’m not sure whether you agreed that, “How much we can reduce on spending is pretty limited”, what is more wiser way for us to do is to find ways to increase our income.”
If you are looking for an independent financial advisor to guide you along the way and able to pint point your grey areas in financial planning, feel free to drop me an email for an appointment.