March 22, 2009
Got the pink slip? Tips to stay afloat
Take steps to put yourself in a better position financially should you lose your job
By Lorna Tan
Just a year back, jobs still seemed aplenty. Now, workers fear the dreaded R-word: retrenchment. It can be scary.
More than 10,000 jobs will go this quarter, some experts say. How do you prepare for the worst if you are still employed but worry that you are in the firing line?
IF YOU LOSE YOUR JOB
Take stock of your financial health
Tally up your emergency funds to see how long they can sustain you and your family, said OCBC Bank's vice-president of global wealth management, Ms Anne Tay.
Emergency funds include all liquid assets such as cash, bank accounts, time deposits and money market funds.
Then, total up the monthly household expenses, taking into account once-a-year items like road tax, insurance premiums and property tax.
You can then figure out how long your funds will last to pay for these. If you have, say, emergency funds totalling $10,000 and your monthly household expenses are $2,000, these funds will last five months.
Stretch your money
Make your dollar go further by trimming unneeded expenses. Have a household budget to help analyse spending patterns.
Ms Kristina Sharmini, Alpha Financial Advisers' business unit director, suggests separating basic or essential items from non-basic ones.
Put utilities, food, transport, housing and phone bills in the basic column and non-essentials such as birthday gifts, vacations, haircare and cable TV in the other.
Trimming of expenditure should start with the non-basic items.
Ms Evelyn Goh, executive director and deputy chief executive of wealth management firm Providend, has some cost-saving tips:
§ Have a part-time maid instead of a live-in one or better yet, roster family members to perform domestic duties;
§ Eat in and buy no-frills house brands; and
§ Get cheaper haircuts and do your own facials.
§ Refinancing options
If you have a home mortgage, assess how many months of your loan instalments can be serviced by your current Central Provident Fund (CPF) Ordinary Account balance.
With fixed and variable housing loan rates at an all-time low, switching to a better loan package will lower your monthly payments.
Maybank's three-year fixed rate package is the lowest fixed rate deal in town. It starts at 1.6 per cent for the first year, then 2.2 per cent and 2.9 per cent in the second and third years. It works out to an average of 2.23 per cent a year over three years.
On the market too are variable packages pegged to publicly known rates like the Sibor interbank rate, which is hovering at just 0.71 per cent a year.
A DBS Bank Sibor-linked package has a rate of 1.75 percentage points plus the prevailing Sibor rate, for loans with 80 per cent financing.
Insurance restructuring
If you can, resist terminating your insurance plans to save on premiums.
Ms Goh says such coverage might be that much needed income replacement should the breadwinner suffer a major illness or premature demise.
Consider instead replacing a whole life policy with a term plan. For example, while a $100,000 whole life with critical illness plan might cost a 40-year-old man $4,596 a year, a term plan with the same coverage till 99 would be $1,776, a saving of $2,820.
Try not to let your policies lapse during a crisis so talk to your insurance company to restructure your premium, says Ms Tay.
Some companies are already offering policyholders premium holidays or schemes that allow a retrenched person to keep some insurance coverage at a lower premium.
Recently, POSB and DBS credit card members were offered a new Card Payment Protection insurance plan that covers their outstanding credit card balance should they lose their job.
Consolidate bank accounts
Most savings accounts pay interest on a tiered basis. Consolidating all your savings amounts will earn you a higher interest than having small amounts in individual savings accounts, Ms Tay said.
YOU ARE EMPLOYED BUT WANT TO PREPARE FOR THE WORST
Start a family budget
Discuss with your spouse your financial concerns.
Mr Brian Goh, senior vice-president and adviser with ipac financial planning Singapore, said: 'Many couples don't have conversations about money, family finances and expenditure. They should sit down and have a serious discussion on what needs to be done if the worst happens.'
This includes planning a budget for scenarios like when one or both of you lose your job. Singles may also need to budget and cut back on expenditures, he said.
Now is a good time to work out a baseline budget, that is, the minimum you can live or survive on, and where you can cut back. For example, can you do without the car?
Emergency fund sources
Aim for a bigger contingency fund of, say, 12 months' worth of expenses rather than the usual six months recommended during normal economic times, said Ms Goh.
Be sure, too, which liquid assets you can tap on to tide you over a career transition.
For instance, the cash values in your insurance policies are a source of emergency funds, so ask your insurer to give you an update on them.
But terminating a policy prematurely is not recommended.
Get a personal credit line while employed and especially if your credit history is still good, said Mr Goh and Ms Tay. This is yet another source of emergency funding and safety net.
Avoid having more debt
Consider paring down your loans, particularly if you have higher interest-incurring loans like credit card debts. Avoid rolling over credit card balances and accumulating debts that incur a high interest rate of 24 per cent a year.
Have a healthy debt-servicing ratio - debt divided by income - which determines how much take-home pay is servicing monthly loans like mortgage, car loans, personal loans and credit card debts. It should be 35 per cent or less.
So, out of every $1,000 of monthly take-home pay, after deducting personal tax and CPF contribution, you should not use more than $350 to service your loans.
Mortgage refinancing
If your home loan rate is above 3 per cent, refinance it now to take advantage of low rates. It will be harder if you have no income. But make sure you take into account any penalty and administration fees for premature loan redemptions.
Know your benefits
Find out if employee benefits like the medical insurance cover you get from your employer is portable and how much it would cost to close any gaps if you get laid off.
Mr Goh said retrenchment typically means such hospitalisation benefits, usually not portable, are foregone.
'My advice is to find out from your financial adviser or insurance agent whether you need to replace this and how, as well as how much it costs to do so,' he said.
Upgrade your skills
Start upgrading your skills, be it for career or personal development, said Ms Sharmini.
'We need to remain relevant in our skillset and in our outlook. Volunteering towards worthwhile causes also helps us appreciate life better and alert us to be more careful in how we spend,' she added.
If you are a foreigner, consider applying for a PEP
If you are here on an employment pass, think about applying for a personalised employment pass (PEP), Mr Goh said.
A PEP is not tied to any employer and the holder can remain in Singapore for up to six months between jobs to look for new employment. A PEP is granted based on criteria like the holder's last drawn pay.
An employment pass is more restrictive as it is tied to a specific employer. If a holder leaves the company, his pass is cancelled and he must leave Singapore unless he finds employment with a new firm.
DOWN BUT NOT OUT
Andrew (not his real name) had to make some difficult financial decisions when he was laid off last year.
The 49-year-old, who was a senior manager at a multinational corporation, reviewed his financial situation.
With help from an adviser at wealth management firm Providend, he assessed his available funds, explored options to lower his expenses and examined the impact on his children's tertiary education funding and his retirement goals.
He took the following steps:
He downgraded from a 3,500 sq ft cluster house to a four-room HDB flat, reducing his monthly mortgage from $2,500 to $1,100.
He downgraded from a Mercedes E200 to a Toyota Wish, which led to petrol savings of $150 a month. His annual car insurance premium also fell by about $350.
Andrew has an investment property he hopes to sell at a suitable time.
He was paying a 4 per cent fixed rate mortgage on it but switched to a floating housing package pegged to the interbank rate. He got a rate of 1.53 per cent, cutting his monthly payments from $6,400 to $5,000.
He held on to his insurance policies but considered opting for a premium holiday as an interim measure.
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