I recently read an article suggesting another economic recession may be looming. What’s the wisest way to handle my finances during a period of economic uncertainty?
Answer: Your question is important and deserves the best possible answer. Trusted financial expert Ron Blue offers the following:
Since inflation is an important element of any recession, it’s critical to guard against four popular myths that are centred on this factor. They contain just enough truth to make them believable, but a closer look reveals why it’s unwise to let them influence your financial habits.
Myth #1: Buy now because it will cost more later. The cost of computers and electronic equipment demonstrates that prices don’t always rise. The question is not what something costs now versus the future, but whether you really need it.
Myth #2: Always borrow to buy. Two elements of truth support this myth: 1) “payment” ringgits are cheaper than “borrowed” ringgits; 2) interest deductibility reduces the interest cost on some loans. Unfortunately, it’s also based on two highly questionable assumptions: 1) that the interest rate is less than the inflation rate and 2) that the cash that could be used for the purchase is earning more than the cost of borrowing.
Myth #3: You can never accumulate enough. Inflation often makes us feel like prices are increasing faster than our savings earn interest. However, if you spend less than you earn, over time the earning power of your money will always be greater than the inflation rate.
Myth #4: The rate of inflation is standard for everyone. This isn’t necessarily so. If you plan to have a cash flow margin by living within a simple, workable budget, your personal rate of inflation will be substantially lower than the nationally reported rate.
While economic downturns are unavoidable, you can minimise their effects: Spend less than you earn, reduce your debt, and build personal liquidity through savings and investments.
You may also get a copy of Rising in Resilience: A Family’s Guide to Surviving a Financial Crisis booklet here. Booklets are available in Bahasa, English and Chinese.
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