Global Recession. It's not just a word, but a feeling. A spine-chilling feeling that brings you back to the ground, triggers nervousness and anxiety, and a feeling that makes you go cold while thinking about your and your family's professional and financial security in the coming future.
Looking at the current global economic scenario, wherein
· The war between Russia and Ukraine has disturbed the global trade and supply chain,
· The U.S. is battling the worst outbreak of inflation in the past 40 years,
· The inflation in the U.K. has increased to a 41-year high,
· China is facing deflation, and
· Japan's economy unexpectedly shrunk for the first time in the last three quarters,
It is quite clear that economies across the globe are experiencing a cold wave, which is expected to spread further. This undoubtedly strengthens the belief that 'Winter Is Coming'.
Yes, there are possibilities that an economic snowstorm may strike soon, and it may affect your and your family's professional and financial health. And in order to help you avoid getting caught in the cold and successfully sail through this unexpected scenario, here are seven expert-recommended strategies to recession-proof your finances;
Recessions are a part of the economic cycle and their effect stays on the economy for a few years. As global recessions are inevitable, you need to stay calm and accept the situation as is. Instead of stressing out and losing your calm over something that's beyond your control, it's important to focus on things that are in your control and start finding effective ways to face and overcome this unexpected situation.
Always remember that global recessions are the harsh winters, and after winter there is a summer and spring.
Prepare Your Emergency Fund
As they say, it's always good to be prepared for a bad day, and tough times test you from all sides. No one can predict the exact emergencies that you may face during a global recession.
From a pay cut or job loss to medical urgency or even a car breakdown, emergencies can come in all shapes and sizes. While medical emergencies can be covered by insurance, you will always need to bare the expenses to manage the other emergencies. Thus, it's important to have an emergency fund comprising at least 6 months of your monthly expenses, so that you can easily face and overcome any situation without facing any financial shortage or falling into a debt trap.
Give Priority To Repaying Your Debt
Repaying your debt as soon as you can, will help you save on the interest amount. Achieving complete freedom from debt, especially high-interest debts like credit card debt, personal loans, high-interest borrowings from money lenders, etc.
Repaying such high-interest loans will give you peace of mind by eliminating the stress of regular EMIs, a negative impact on your CIBIL Score in case of a delayed or default payment, and increasing your saving.
Make Two Budgets
Though budgeting may sound traditional and cliche, it is undoubtedly the best and most extremely effective way to manage your income, expenses, savings, and investments. Along with helping you learn the art of managing your finances, it also enables you to develop the discipline, required to master the art of managing your finances and growing your wealth.
Making two budgets primarily means creating a budget for your current financial situation and another budget for the global recession period in the future. Currently, as you may have a job along with a regular income, though minimum, you can still manage to incur a few luxury expenses along with utilizing the maximum part of your income to repay your debts and prepare an emergency fund.
The second budget, i.e., the global recession budget, is supposed to be deployed when you directly get affected by the global recession and face a pay cut, job loss, and inflated prices of essential commodities. That budget should only focus on utilizing your resources, only to manage the essential expenses e.g. food, medicines, etc.
Diversify Your Investments
Investing your entire investment capital, or a major part of it, in one asset class or sector, may increase the amount of risk, in case that particular asset class or sector underperforms. Apart from a significant loss, it may also lead you to lose your entire capital.
Therefore, it is always advisable to spread the amount of risk by diversifying your investments across multiple asset classes and sectors, e.g., equity, debt, FD, gold, real estate, pharmaceuticals, automobiles, FMCG, etc.
Above all, it is of utmost importance to continue your investments, focus on long-term objectives, and restructure your portfolio as per your risk appetite.
An emergency can arise at any time, and just as we prepare an emergency fund for emergencies that cannot be insured, we must get insured for emergencies like medical, accident, theft, fire, death, or any other kind of emergency that may lead you to lose a major portion of your savings, and disorganize your investment schedule.
While subscribing to an insurance policy, it is extremely important to consider the amount of coverage, premium, term, tax benefits, and all the conditions that apply while filing and settling the claim.
Upgrade Your Skills And Explore A Second Income Option:
Global Recessions are considered to be the most unpredictable times, and sometimes even the most valuable, talented, and hard-working employees have the bear the consequences of a pay cut or job loss.
Currently, it is believed that almost 75 million jobs across the globe are at risk, and just like Twitter, Meta, Amazon, and Google, which recently laid off thousands of their employees, you never know when your company decides to lay you off.
Therefore, it is important to constantly upgrade your skill sets and be well-versed with the latest technologies, tools, trends, and requirements to make yourself eligible for a different job, or even a freelance project to develop a second or passive income, in case your primary income reduces and stops.
While we all wish that Winter Doesn't Come and there should be no economic recession, pay cuts, and layoffs, looking at the indicating factors, it would not be wise to ignore everything and continue our lives without worrying about what's coming our way.
(CA Manish P. Hingar, is the Founder at Fintoo. The above is the opinion of his and do not necessarily reflect the opinion of Greynium Information Technologies)