How to Come out Ahead in a Downturn

We are almost certainly in a downturn or recession now. It’s a question of how long it will last. But are there things you can do during this time to survive and even thrive?

There is a lot you cannot control. You can’t control the overall number of corona virus cases, and you can’t control whether your stock does up or down.

Spend some time on things you can control. The most shrewd people see beyond when everyone else is panicking, and think about how can they adapt and seize opportunities.

Here is what I’m doing.

Refinanced my Property Loan

Why should only banks and corporations gain access to ultra low borrowing? You need it just as much as they do. If you can, refinance your home loan.

SIBOR rates are less than 1% now. With the bank’s spread of 0.3%, the loan costs can be about 1.2% – 1.3%, one of the lowest ever in history. This is a floating rate loan which will track the SIBOR rate, so if it goes up or down, our loan costs will follow accordingly. I believe the low interest rates will last at least 1-2 years, so its fine for us to use the floating rate.

My wife and I have just refinanced my HDB loan to a bank loan. We had about $300,000 remaining on the loan. Before the refinancing, our interest rate was 2.6%, with a total monthly payment of $1,650. With the new terms, our monthly payment is about $1,150. This is a saving of $500 each month or $6,000 a year. Not too shabby.

Buying Assets

There is some light ahead. Italy’s cases have come down, the US government is pushing the largest stimulus in human history, and Trump is hinting that the lock-downs will be eased by Easter. Springtime is starting in the Western world, with warmer weather that will suppress the virus. Wuhan is re-opening on 8 Apr. Ventilators and medical equipment are being made at a frantic pace. There are new jobs that are being created in manufacturing, technology, and healthcare, mitigating the huge job loses in other sectors.

Right now everyone is pricing for the world to end and that we will be using toilet paper to barter for food at the end of our times. I don’t think that happen.

So buy stocks and bonds from your fearful neighbours. Do them a favour by relieving them of their burden and stress. Bravely transfer the risk to yourself and let them exit.

Taking the opportunity to buy things also applies to big purchases like cars. You could have gotten a Certificate of Entitlement (COE) of below $10,000 in the last great financial crisis of 2008. Prices are around $33,000 now. While it probably won’t go back down to 2008-2009 levels, the COE prices should be suppressed for a while. If you have the cash and feel confident about it, why not?

Be sensible about your own situation though. Don’t overextend yourself. A good rule of thumb is to have enough cash for at least 1 year of expenses. Make sure you have a secure job and income coming in too.

Reducing Expenses

With my net worth down substantially, I feel a lot poorer now. I have taken steps to reduce my everyday costs.

  • Switched to Circles Life, a no-contract phone plan. I used to be on SingTel, paying about $90 each month for 8 gigs of data. What a dummy I was. Now, I’m paying a much more reasonable $18 per month for 20 gigs. Service is way better too.
  • Changed my gym. I was a Fitness First platinum member, paying about $170 per month. I have switched to EnergyOne at SAFRA which has a promotion of $480 for 15 months or $32 a month. The gym is less crowded, has an Olympic -size pool just outside, and a hot jacuzzi. Its a pretty good deal if you happen to be near a EnergyOne gym. You do need to be a SAFRA member though.
  • No travel. We have been spending in the region of $8,000 a year for various holidays during the year. We won’t be spending that at all this year. We will try explore Singapore more, perhaps go to parks and museums to give the kid some air and space.
  • Less eating out. We are used to eating out least 2 meals out during the weekend. While I tend to choose places on Entertainer (which gives 1-for-1), we will be eating less and at more casual places from now on. I estimate we can cut down this budget by at least $150 a month.
  • Going to public hospitals for my check-ups. For the past 2 years, I had all my medical scans and check-ups done privately. I didn’t want to take too much medical leave and wait, and private care is a lot faster. But the costs were high, with scans costing about $2,000 each time. Now, I go to SGH to do the scans, which only costs less than $400. This saves me about $3,000 a year.

All in all, this is about a $2,000 reduction in expenses per month. My quality of life is still great and I certainly don’t feel like it’s a downgrade.

My household expenses are relatively low in the first place since we live in a 4-room flat and have no car. Our household of 4, including a helper, can get by pretty comfortably on $4,200 a month. This doesn’t include the home loan. It is covered fully by our CPF Ordinary Account (OA). So zero cash outlay there.

Those are just my quick ideas. Do you have any suggestions on how to come out ahead from this downturn?

3 comments

  1. If you are using entertainer, then your spending is likely not low enough haha.

    If you explore some freegan lifestyle, you may realize that the food expenses really go down until you wonder why you need so much money. Of course, in times like this, it is a bit tough to practice dumpster diving.

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