What Is Your Financial Plan B?


Before Plan B, there is always a Plan A.


A financial Plan A is usually made up of our financial goals and dreams, the things we wish to accomplish and attain in life to be financially secure and happy. These goals and dreams can range from your short-term desire to go on a holiday to Bali, to your long-term retirement plan. If you’re a family-oriented person, you could even create a goal to have enough money to give your future children a good education in university!


So, you probably have an idea on what your Plan A looks like, and you are most likely emotionally attached and financially invested in these goals.


However good your Plan A may seem, we must always remember that life happens unexpectedly to everyone. Take 2020 as an example. Many of us thought this would be the year of perfect vision where we would be at our maximum productivity and potential; one of the best years yet! No one could have seen this coming.


Mike Tyson, famous for his legacy as a professional boxer once said,

“Everyone has a plan until they get punched in the face.”

Tyson teaches us that we must always have a contingency plan. We should prepare ourselves ahead of time and not let ourselves be caught off guard – and surely not in our finances!


The Enemies of Plan A

When preparing a financial Plan B, it is important to know the enemies of Plan A. This way, you will be able to better anticipate and prepare for the things that may threaten the stability of your financial plans. Some of these enemies are in your control, such as:

  • Undisciplined cash management which includes unnecessary expenses you never budgeted for (because Lee Minho asked you to ‘add to cart now’).

They could also be out of your control, in situations like:

  • Changes in your income flow due to unemployment, pay-cuts, or not getting the increment that was promised to you before the Covid-19 pandemic.
  • Changes in your cash outflow for an unexpected pregnancy.
  • Unexpected illnesses or even death that could throw a wrench into your plans.


So, a question surfaces: Why do we need a financial Plan B?

The answer is simple: Plan B is your pre-planned response to the enemies of Plan A. It’s the foundation you should build to protect your Plan A and ensure that it can still be accomplished smoothly regardless of what happens in life.


What does a Plan B look like?

There are 3 main pillars in a Plan B:

1. Emergency Fund

More commonly known as a safety net, an emergency fund is a pool of cash that can help you ride out the bumps in the road of life. This supply should be near-cash or ‘highly liquid’, which means that it is easily accessible or easily sold in case of emergencies. Examples of near-cash assets are savings accounts, certificates of deposit, and foreign currencies. As a general rule of thumb, it is encouraged to have at least 6 to 12 months worth of expenses in your emergency fund to ensure that the safety net is large enough to give you room to breathe when (not if!) things happen.



But, how exactly should you build and use an emergency fund?

  • Set a target amount

Doing this will help you visualize how much you want to save, and guide your next move on what you need to do to accomplish this.

  • Schedule a standing order

Automate and schedule a transfer of your desired amount to a different account every month upon receiving your salary. From this, you won’t need to spend time and energy actively thinking about your emergency fund.

Make sure to separate your emergency fund from your daily cash. Don’t keep them mixed up in one account! There is a definite psychological effect that makes it more likely for you to spend unnecessarily when you have RM50,000 in your account compared to only RM500.

  • Build it up over time

Rome was not built in a day! This emergency fund should be built up over time. You do not need to transfer large amounts of money at one go. Small efforts compound into big returns!

Only use your emergency funds in a real emergency. Dire situations like when you lose your job or desperately need to fix up your car are the main reasons why you have this fund in the first place.

  • Divert excess savings to other goals

Once you have reached the primary goal you have set for your emergency fund, you should always try to divert excess funds to other financial goals you may have.

  • Consider inflation protection


If you leave all your money in your savings accounts, you may not be getting the most out of your savings. Savings accounts only give very minimal interest rates and only for certain ranges of money in the account. You can consider putting money into a fixed deposit (FD) account or even use helpful applications like StashAway Simple.

This ensures that you are not leaving your money in an account with zero interest but squeezing your emergency fund as much as you can to grow it a little at a time. However small the returns, it counts towards the bigger goal!


2. Protection

Another important part of preparing your Plan B is to think about getting sufficient financial protection for your Plan A. This comes in the form of purchasing insurance policies for replacement of money when things don’t go according to plan. Insurance is a topic that confuses many as there are so many different types such as life, health, car insurance, and many more. Not to mention, these insurance policies are all named differently across different agencies!


There are 3 main uses of insurance:

  • Replacement: Replacing income in case of untimely demise or physical impairment
  • Investment: Paying a premium each month to buy a unit trust via a bank to gain returns (but this is generally not recommended)
  • Legacy


It is a challenge trying to determine how much insurance we really need, but the most basic thing about insurance is that it should only need to cover just enough of how much we need for our goals in Plan A if something happens. Wai Ken, founder of StashAway recommends that we “Buy Term, and Invest The Rest.”


According to Wai Ken, term insurance (or otherwise known as life or replacement insurance) is the simplest form of insurance and is the only insurance you need to prepare your Plan B. It gives you a certain financial payout if you pass away before a certain age. You pay a premium each month to obtain this protection, and if you do happen to pass before a certain age (let’s say 60 years old), then your dependents will gain the payout for this insurance (perhaps it could be RM2,000,000 for your spouse and children).


What can term insurance actually cover?

  1. Total & Permanent Disability (TPD): Change in your ability to work caused by physical impairment (such as blindness or losing a limb)
  2. Long-Term Disability: Similar to TPD, but there is a chance for you to recover through prolonged therapy or treatment
  3. Death
  4. Critical Illnesses
  5. Medical costs: There is also health insurance that is separate from this policy


It is always best to check with your insurance provider on what exactly you are covered for in your specific insurance policy.


You can also check out other resources on insurance such as BFM’s podcasts, The Edge, Mr Stingy, Ringgit Oh Ringgit, or Mr Money.


3. Estate Planning

Estate planning may sound like a very far fetched thing to prepare for, but in essence, it is about planning and delegating your assets (the things you own) to your beneficiaries when you pass away. This can be done through wills and EPF nominations. You don’t need to be wealthy to do this – anyone can and should!


If you do not have a will or a clear EPF nomination, you will be left intestate when you pass on. The government will then have full power to decide how to distribute your assets and who to distribute them to according to the law of intestacy (Distribution Act 1958). We certainly want to have control over these things even after we’ve passed on, don’t we?


Besides, it is also cheaper and faster to have a will than to not have one. It will take a long time for your beneficiaries to receive any of your assets as the process is long and arduous when left to the government. Imagine your family and children not having the assets and things they need to take care of themselves after you’ve passed!


There are 3 degrees to estate planning:


1. Convenience: Joint ownership of property and accounts

Having a clear statement of joint ownership of bank accounts or property will ensure that your spouse and family will automatically gain control of your assets and do not need to go through the process of confirming their rightful ownership when you have passed.


2. Clarity: Wills and EPF nominations

Planning your estate will provide clarity on how much and who exactly your assets get distributed to. It will avoid any confusion or added stress on the matter if you have a will that clearly states your wishes.


3. Control: Trust funds

You will have a higher degree of control over your assets and what happens to them after you pass. If you have loved one that you would like to distribute some of your assets to, you can set certain terms and conditions to be met before they gain access to these assets, such as an age limit or any specific qualifications they must meet.


Wills can be drafted and completed easily with a couple of witnesses. It only costs RM200 – RM300 to create through an online will writing service. Some banks like Maybank also provide a will writing service within this price range! All you need to know is who you want to nominate and the relevant assets you want to distribute among them. EPF nominations are also easily done directly with EPF services by filling in a form on their website.


EPF Nominations are especially crucial, as this official document actually supersedes the will! By nominating your beneficiaries in the EPF Nomination form and aligning it with your will, you could avoid any hiccups in the process of delegating your financial assets to your family. (You can choose to fill out 4 fields on the EPF website).


In conclusion, it is imperative to have a Plan B in place to ensure the success of your Plan A.

In many ways, these plans are put in place as a contingency plan to protect both our assets and our loved ones if we are financially threatened. We hope these 3 strategies have helped you better understand how to prepare for and create a financial Plan B to supplement your Plan A in life.


With that, we wish you all the best!

If you’re looking to start investing your wealth at a low-cost with risk-managed portfolios and ETFs, you could start with StashAway Malaysia. We have a special offer just for Crunch readers too! Sign up with this personal invitation and you’ll get a 50% deduction of fees for your first RM100,000 invested for 6 months!

A passionate creative with a curious knack for crafting walls of text and an unending love for people, words, and tea.

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