ARE there times when genuine good can come from what seems like a terrible (and terribly) drawn out crisis?
In these dark days with millions infected by the Covid-19 virus and hundreds of thousands dead across the world, it appears inevitable that we will cross 15 million C19 infected people globally — which is almost half of Malaysia's population — and a corresponding one million related deaths long before a viable vaccine is created, tested, refined and distributed worldwide.
Depressed yet?
Such outrageous projections are enough to disturb all compassionate, contemplative individuals. So do take comfort in two other predictions that I'm willing to stick my neck out for:
1.This deep global recession, or perhaps even depression, will be shorter than the pessimists predict; yet
2.It may still be long enough to bring about positive, beneficial and deep-seated changes in the personal financial behaviour of some people.
The reason I'm convinced that this economic downturn will be shorter than the decade-long Great Depression, which started in August 1929 when the US economy started to contract from its decade-high, is that today's united central bankers have learnt from the Fed's missteps 91 years ago.
Admittedly they will unleash fresh problems later but for now they're doing what they must to hasten recovery.
(It might interest you to know that the economic collapse in the US accelerated with the October 1929 New York Stock Exchange plunge. Soon after a chain reaction of economic implosions spread like wildfire across the globe.
The deep pain lasted a decade and the global economy only began to recover economically between 1938 and 1939 when the spectre of war loomed on the horizon. Note: When World War II began America's unemployment rate plummeted from 25 per cent to 10 per cent!
Now, with mid-2020 predictions suggesting the bigger but now less respected US possibly facing 30 per cent unemployment before its vast economic engine starts to rev up after humanity defeats C19, I pray Donald Trump doesn't harbour anymore misguided ideas about "making China pay" for his administration's incompetence in dealing with the pandemic within America's shores.)
BIG STEPS
You and I know that between general elections there is little regular people can do about the way democratic nations are run by our respective powers that be.
Nonetheless, there is a lot we can do to ensure the next time a mega crisis crashes upon our shores we are in much better shape to handle it. To start with, we should take five BIG steps:
1.Decide to live more simply;
2.Prepare and stick to a written budget;
3.Build a thick Emergency Buffer Fund (EBF) as a shield against the vagaries of life;
4.Invest broadly for long-term wealth accumulation; and
5.Get out and Stay out of Debt (GoaSooD)
I've written on each of those five steps in Money Thoughts; feel free to explore past columns here: www.nst.com.my/authors/rajen-devadason
Now, though, I'll focus on steps 3 and 5: EBF and GoaSooD.
In every major economic or financial crisis most people suffer and thus emerge physically weaker and economically poorer than they were before it.
Yet a few emerge from that long, dark tunnel stronger and wealthier than before.
How and why? Each deep crisis causes economic woes and financial stress. If, however, we have a fully funded EBF we will be in better shape than most other people to sail through those tough times. An often used yet still accurate cliche explains why: Tough times don't last, but tough people do!
Having a personal EBF with sufficient cash to pay for between three and 12 months' household expenses calms the nerves and sustains us through the worst of any economic crisis.
But what then about my weird mnemonic GoaSooD: Get out and Stay out of Debt? If truth be told, most of us aren't sufficiently frightened of debt! That's why we sometimes end up entangled in a web of loans we can service when times are good.
Sadly, good times never last!
Thankfully, neither do bad times. Key lesson: If you focus on NOT piling on fresh debt while you toil to defeat your personal Debt Monster, you will eventually escape debt.
SMART ACTION
It will take most of us years, possibly decades, to become debt-free. But if we resolve to keep reducing our liabilities — be they so-called bad debt OR even more enticing good debt — then with the eradication of each liability, like an unpaid credit card balance or a personal loan or car loan or home mortgage or even business expansion loan, your vulnerability at the worst point of each deep economic crisis lessens.
As you contemplate my unpopular, unconventional and tough financial planning advice, ask yourself: Do you truly wish to experience Freedom from Fear or at least Freedom from Financial Fear?
I know your answer.
The irony is that if you're frightened today by all the economic stress you're experiencing in this pandemic, then IF you extract the correct terror-fuelled lessons from it, is it conceivable that 10 years from now you will look back upon 2020 as the year you acted wisely because you were spooked into smart action?
If so, might you end up reminding your future self of 2030 that back in 2020 you began the process of gaining true financial freedom from fear?
© 2020 Rajen Devadason
Rajen Devadason, CFP, is a Licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason.