A recession is generally referred to as a period of negative economic growth, spanning over at least two quarters. It is caused by a significant decrease in consumer spending, which can be due to different reasons. It is no lie that we are in the midst of a recession right now, and we have no idea how long it will last or how significant would its impact be.
With the daily-evolving measures taken worldwide by different nations, we look set to contain the virus growth given enough time and hardships, but for medical authorities to devise a vaccine or cure will be a different game. While we are all doing our best to follow the measures set to ensure public and personal safety, it is time to look at a few things that we can do to strengthen our financial core. Below I have listed a few of my thoughts around the same:
1. Setup/Evaluate your Emergency Fund: Most of us know that an emergency fund is a readily accessible form of saving that we do over a time to help us survive through a financial crisis. A good emergency fund should be able to sustain you for at least 3 to 6 months while you look for other streams of income.
An emergency fund can constitute of:
- In-hand cash
- Money in a savings account
- Bank RDs/FDs and other short-term no lock-in investments
- Investments in liquid, overnight funds
In case you have never given thought to this kind of a fund, or you had planned but couldn’t do it due to some other priorities, now is undoubtedly the best time. For others, who have already set up this kind of an emergency fund, I would recommend spending some time re-evaluating the same, as your monthly spending could have changed in recent times.
2. Plan your monthly budgets with your family: In these uncertain times, it is crucial to ensure that you have a monthly budget planned out for all your spending needs. Sit together with the members in your family and let all participate in planning the budget for the next few months (at least the next three months). Having a budget and adherence to it helps you build discipline and can do wonders in the long run.Below are a few things that can help you plan one:
- Make the first version of the budget by attending to your family’s essential needs only. Include spending on necessities such as grocery, monthly rent, school fees, etc.
- Next, include any EMIs (for Car, Personal, Housing, Education, Utility, Credit Card) or other kinds of loan repayments to necessities. You should not skip on any of the EMIs to ensure you have a good credit score to help you in case there is a need to borrow at a later time.
- Include any EMIs/Payments that you are making for Health/Medical and Life insurance. These are the times for which you had purchased those insurances, so try not to default on them.
- As we are not going out for dinners, parties, and other recreational activities due to partial/full lockdown and self-isolations, many can save the right amount of money that was earlier spent on such activities. I will advise that you contribute this amount to building your emergency fund and once you have taken care of it, use this surplus money to clear any standing debts that you may have (start with making payments to the highest interest credit card)
- Re-evaluate any subscriptions (both physical and digital) that you may have, and if possible, try to reduce them to important ones only. Standard subscriptions include Cable-TV, Streaming apps, Magazine subscriptions, etc.
Planning a budget with your family makes them feel responsible for a common goal. At the same time, it makes them more willing to support, and you may be surprised how this group activity can help reduce your tension and anxiety levels.
3. Take care of your debts: We have already gone over this, but it is as crucial as any other thing. When in times of a financial crisis, it should be one of your primary goals to not default on any of your debt repayments. Making consistent payments helps to ensure that your credit score remains in good standing and that you can get loans at decent interest rates in case you have to borrow some money in the future.
4. Continue your SIPs and investments, but don’t try to time the market: In case you have already secured your emergency fund, you should continue with your SIPs and investments. In the longer time-frame, these investments should help you reap healthy profits.
However, if you are new to stocks and trading or have recently got motivated after listening to Trade gurus and TV pundits, I will recommend that you please stay away from making speculations and continue with your usual saving strategies and instruments. As the chances are that you may do yourself more damage by trying to time the market only to end up borrowing money or losing patience in a short while.
5. Try to take more work in your current job: At the time of writing, we are already in a recession, and with no immediately available vaccine or cure, the current economic downtime would inevitably extend for many more months, or things could get even worse. In such a scenario, it is in the best of your interest to make yourself indispensable at your current job by taking more and more of tasks and meeting/exceeding the expectations of your boss and stakeholders.
Working from home could take its toll on many of us, especially those who like or need to be in an environment consisting of people having a similar mindset/skill to deliver efficient throughput. In such cases, you must try to sort through daily working challenges by making adjustments wherever possible and ensure that your work quality does not deprecate as that’s the principal thing.
During the last few weeks, we have already seen reduced demand for products and services of various sectors, especially hospitality and aviation and now automobiles sector. Reduced travel would influence oil and gas demands and thus their prices and would significantly impact the metal sectors. Similarly, several other industries like Luxury goods have already seen the impact or would see so in the coming times. As demands reduce, the profits would crumble, and cost-cutting measures ranging from reduced pay to mass lay-offs would be enforced across organizations. As much frightening as it is, and I wish it never happens, we must mentally strengthen and prepare ourselves to not be surprised at a later point.
6. Upgrade yourself: Take online courses to learn new things and trades to help you acquire new skills or strengthen your existing ones. Learn something that makes you more skilled at your current job and help you prepare for a new one (you know, just in case).
7. Take side-hustles: Having side hustles not only compliments your income in usual days, but it also acts as a fallback option in times of a lay-off. Make a list of things that you can do or services that you can provide based on your current skill-set and look for more work in your domain. Depending upon the skills that one may have, there are several online marketplaces/platforms where new requirements get posted every day, and you should be able to fulfill them from the comfort of your home. Having a portfolio showcasing the work you have done to date will undoubtedly help to lend more opportunities.
8. Start updating your resume: Given that we have started to see mass lay-offs and pay-cuts in a few sectors, it is a good idea to take some time to update or refine your resume. Make sure you capture all your latest projects and the new skills that you may have recently developed. Start with simple updates like changing the language or design to make your resume look more professional. Update it to reflect the latest version of yourself.
Do let me know in the comments below if you know of some other things that can help us prepare financially for any upcoming misfortune.