Worrying about money does not make for an efficient employee. But in a time when stock portfolios are diminishing, how can you keep a rational view on your money matters?

In my last six months working with HR practitioners to bring financial education awareness to their staff, one area of concern stands out. “How can we help our people prepare themselves and their families to cope with the deepening financial crisis, but also encourage them to see the positive side of it?” After all, a motivated employee can better contribute to help the company weather this very tough environment.

This crisis is not a normal boom and bust business cycle. It is a structural breakdown caused by the failures of financial systems. As a result, we have many financial and non-financial institutions heading towards bankruptcies with millions of people worldwide losing their jobs. This type of severe crisis comes once every few decades, the first being the 1930s Great Depression and the second, the 1970s Middle East Crisis. We need to let people understand that we will not get out of this crisis easily and things will get a lot worse before it gets better. Yet at the same time, we must motivate them to seize the opportunity this crisis has presented.

I’ve always complained about missing all the good investment opportunities in life. This time round, I am determined not to miss it again because everything from properties, bonds, equities in US, China, Singapore and even commodities never look so cheap. If we are investing for our retirement and children’s education, we just can’t miss this chance. Once we miss it, it would be many decades before another crisis as big as such happen again. So what should we do?

Build on a strong foundation

A crisis is a good time for us to take a step back and assess our financial health situation. You can check your financial health by asking yourselves three simple questions:

a. Do I have sufficient cash in the bank to cover at least six months of living expenses?

b. Am I saving at least 10% of my income?

c. Am I using less than 35% of my total salary to service all my loans?

Cut down on expenses and loans

If you can’t say “yes” to any of the three questions above, this is good time to nurse yourself back to financial health by cutting down on expenses and loans. You can do so by:

a. Refinancing your mortgage. Loan interests are at all time low and you can save thousands of dollars each year by re-pricing or refinancing that mortgage.

b. Restructuring your insurance policies. People spend too much money buying wrong insurance policies that makes insurance agents rich but themselves poor and inadequately covered. This is a good time to see how you can buy good term insurance and as a result, cover yourself sufficiently and save thousands of dollars each year.

c. Avoid taking new loans. Buy what you can afford and avoid hire purchases even if they allow you to pay interest-free installments. They are still loans.

Have a budget

In all the workshops and talks that I have given, 80% of the people do not have a budget or do not know how to do a budget. A properly done budgeting system will start you on your first step of becoming financially successful. Start your process by:

a. Determine realistically how much you want to save or invest every month. In this crisis, have a certain fixed amount so you can maximise your investment opportunity.

b. Estimate your monthly expenses.

c. Estimate your monthly income.

d. Check to see your total monthly income exceeds or at least breaks even with your expenses, monthly savings and investment targets put together.

e. If there is a deficit, cut down on expenses. Never cut down on savings or investment amounts.

f. Set up your bank accounts in a way that you can make sure you are segregating your savings and investments from your monthly expenses.

g. Every month when you receive your salary, pay yourself first by transferring your saving and investment amount to a separate account.

In my experience working with people, I found the earlier they accept the fact that this crisis is going to be long and severe, the earlier they will recognise the financial opportunities. People who can put in place the steps I’ve described above will begin to stop worrying and be better prepared to look forward to the future with greater hopes and expectations.

Christopher Tan

Financial coach and motivator

Providend Centre of Financial Education

www.providend.com