Image from Morris Creative
Have you ever noticed how more and more difficult it has become to find empty tables at popular cafes around the metro? My friend and I experienced this as we were having coffee in one of the more popular cafés in Trinoma last week. We talked about how these places seem to be always filled to the rafters, which is a surprising sign that we Filipinos are not as hard up as we think we are.
But what if the forecast of some analysts about a stock market crash materializes and reaches our economic shores? What can you do to protect yourself from a financial crisis? Here is a list of ways to “recession-proof” your life.
1. Do “sideline” work and earn extra income.
My real life hero when it comes to managing personal and family finances is my mom, who was able to support a family with five children almost single-handedly. I still remember how she did sideline work like buying and selling jewelry, providing tutorial services, and accepting odd catering jobs to supplement her meager income as a pre-school teacher. The best way to protect yourself and your family from a financial downturn is by increasing your disposable income by exploiting every opportunity that comes your way; unfortunately the problem usually isn’t the dearth of such opportunities, but a combination of our laziness and our disgustingly low standard for contentment. If you need extra cash, for example, and you have a decent grasp of the English language, give me a buzz and I’ll hook you up with a friend who employs part-time writers for his search engine optimization business.
2. Build an emergency fund.
Perhaps the most important thing that you should prepare for in a recession is the possibility of being laid-off or demoted. An emergency fund will ensure that you’ll have enough money for daily expenses until you get back on your feet. One popular rule of thumb for the fund amount is six months worth of your net income, invested in a principal-protected, liquid vehicle like bank deposits that are insured by the Philippine Deposit Insurance Corporation for up to 500,000 pesos.
3. Be debt-free.
High interest charges on some kinds of debt like credit card balances will only put additional strain on your already stretched finances. For example, a credit card balance of 100,000 pesos will cost you 3,500 pesos on interest alone; even if you pay the minimum required amount due religiously, it will take years or even decades to lower your balance to more manageable levels. The best way to avoid this credit card trap is to suck it in while it’s still early and pay significantly more than the minimum amount due.
Also avoid other kinds of debt, like car or housing loans, during a recession. Even if interest rates for these kinds of debt are significantly less (around 10% annual percentage rate or APR) than those for credit cards (around 42% APR), the significantly higher loan amounts translate to equally higher monthly payments. For example, if you decide to buy a brand new Honda City worth 750,000 pesos and borrow the amount for 5 years with a down payment of 20%, you’ll have to cough up close to 14,000 per month. Coincidentally, you’ll have to pay almost the same amount if you decide to buy a condominium worth 1.5 million pesos by getting a 30-year housing loan from Pag-Ibig. 14,000 pesos is a lot of money for most of us, high enough that having to pay the sum every month in a recession is tantamount to committing financial suicide.
Ya gotta love that new Honda City
Click here for Part 2.
