Wednesday, August 21, 2013

Preparing and experiencing a disaster. How we can prepare ourselves for a financial crisis?

I've not been posting in my blog for the past few days. I'm actually in Taiwan currently. If you've watched the news, Taiwan is preparing for a typhoon that is forecasted to come in today. The name of the typhoon is typhoon trami. I'm preparing for this disaster and experiencing it for the first time. I'll share with you on how we can prepare for a financial crisis too in this post. So read on to find out more.

As a Singaporean, we do not have any disasters in our home country. In a sense, we're really fortunate to live in a safe environment. Let me share with you how Taiwan is preparing for this typhoon.

The news channel here is reporting on the typhoon and keeping residents updated on the crisis. Many shops are pilling up sand bags. Fishermen are securing their boats to prevent their boats from being blown away by the typhoon. Currently, many states in Taiwan has declared the sea and land typhoon alert. Schools and offices are closed and declared typhoon holiday. Domestic and some international flights are canceled.

I'm at central Taiwan now. The strength of the typhoon is strongest at the north of taiwan at taipei. From where I am currently, it has been raining very heavily since morning and winds are very strong.

The bad thing for me is i'll be stuck in my hotel for the whole day today. Hopefully tomorrow when the typhoon passes, I can continue travelling.

Preparation for any crisis is very important. It is the same with our finances. During a financial crisis, we may lose our jobs, our investment portfolio will suffer loses and those with high debts will be affected the most.

How do we prepare ourselves for a financial crisis?

1) Set aside at least 6-9months of your monthly expenses as emergency fund

Having an emergency fund will prepare you in case you lose your job during a crisis. It helps you to have a piece of mind to continue living your life and provide for your family while you find another job.

2) Do not be overleveraged on debt

How much debt is a healthy level? Many financial advisors will recommend you borrow not more than 60% of your monthly income. This includes your housing loan. Debts require you to pay interest also. Generally, debts with high interest rates will increase the impact caused to you.

3) Have a compresensive insurance and hospitalisation plan

Having insurance will ensure your family have a sum of money in case something happens to you and hospitalisation plans will cover you for your medical bills. We should have ourselves covered by insurance and hospitalisation plans regardless of a financial crisis or not. Seek a professional financial advisor on what you need. A point to note is do not buy too many insurance plans. Some are not really needed. So do research throughly before buying one.

4) Do not invest money you cannot afford to lose

During a crisis, stock market will crash and most of your investments will be negatively impacted. If you invest money you cannot afford to lose, you'll be emotionally unstable during a crisis and will not be able to make sound decisions. That is what happen to many people who over invest. They got their fingers burnt because they were forced to sell their investment during a crisis. Those who have capital to invest more during a crisis will emerge out better off. Learn how to invest wisely before you even start investing.

5) Upgrade your skills and seek to have more than one source of income

Upgrading our skills or learning more skills will enhance our competitiveness. In case we lose our jobs, we can find another one more easily if we have more skills. Investing in yourself and getting more certifications will definitely help you. Having more than one source of income is definitely even better. We can learn to create passive income. Other sources of income can come from rental from properties, dividends from stocks, part time business, royalties from intellectual properties like books and music albums etc. Learning to create multiple sources of income can increase our income greatly and let us reach financial freedom faster also. During a crisis when you lose your job, you do not have to worry too much too.

These are some of the points that can help us in preparing for a financial crisis. I can write so much today because I'm really stuck at the hotel as the winds and rain gets heavier and heavier. I can see the trees swaying agressively and the winds howling strongly even though the windows are tightly closed. I'm experiencing a nationwide crisis.

Start preparing today. Preparation starts before a crisis happens.

I'll end of with a famous quote:  "If you fail to plan, you plan to fail."

Related posts:
1) Why people lose their money during crisis?
2) How to pick stocks (Part 1) - Economic Moats
3) Rising household debts in Singapore worrying


  1. Preparing for an economic crisis can really be stressful especially of our resources is limited. The best thing to do is to make use of whatever resources that we have to shield us from uncertainties brought about by an economic collapse.

  2. Hi,

    Indeed it is important to have resources in times of crisis. We need to prepare and plan ahead.

  3. Hi, I saw a shared photo on facebook saying that you surrendered your ILP and bought term insurance instead. May I ask why did you do that and that was when you were how many years into the ILP? Would really appreciate your reply, thanks.

    1. Hi,

      I have never bought into ILP before. So maybe the photo you saw was not about me.

    2. Hi,

      Oh no, i must have mistaken you for another person. Sorry about that.

    3. Hi,

      No worries, it's alright. Are you intending to terminate your ILP?

    4. Hi,

      Yes, I am. I have no idea how I have been thinking you and Winston Wisdom Koh are the same person.

      This was where I saw that he terminated his ILP. I am thinking of terminating the plan because I really dislike the yearly management fees plus the 1+% expense ratio. I know I have lost alot to commissions during the first few years but I am assuming that I would lose alot more because I still have 30+ to 40 years to retirement age.

    5. Hi,

      Oh, winston is not me. Haha

      I'm not really in favour of ILP too. I always think we should seperate insurance from investments. The 2 don't gel well together. The expense ratio is probably higher on the first few years. Thereafter it should be lower if I'm not wrong. You can check with your financial consultant on this. I'm not in the position to advise on these products.