Some surveys are talking about an impending recession at the global level, while there are already signs of economic slowdown back home. Whether it will eventually happen remains a million-dollar question. However, by making changes to your everyday financial habits, you can be ready for any eventuality.
During a crisis, the last thing you would want is debt on your books. Repay high interest debt and pay off credit card loans over personal and auto loans and in that order. Apart from the elbow room, you are also improving your credit score.
Often the worst days in the stock market are followed by the best days. So, keep the faith in equities. It is the best bet to provide inflation-beating returns over the long-term.
Don’t panic and sell
Many investors develop cold feet watching their equity portfolio go down by 20-30 percent from a market correction. Some even shuffle portfolio in favour of other asset class such as gold and bonds to protect their wealth. However, it could prove disastrous.
In the last 10 years, equities as measured by Sensex gave annualised return of 9.1 percent returns. However, if you were to knock off five best days of Sensex returns, its annualised returns fall to 7.2 percent. And further to 5.2 percent when you lose out on the top ten Sensex gain days. It underscores the importance of staying invested.
However, if you have realised in hindsight that you can’t stomach the ups and downs and have probably over-invested in equities, take a deep breath. Selling when market is down could erode your portfolio forever. Rather calibrate your portfolio over a period of time to match your needs.
Moreover, continue with your investments for achieving various financial goals. Recession might last for a year or two. Don’t let it affect your long-term goals
Bump up your emergency fund
Job loss or a pay cut could pose a threat to your cash inflows. Bump up your emergency fund
up to more than six months of your household expenditure. Invest it in a stable liquid fund.
Live on a tight household budget
You can prepare for the worst by controlling your spending behaviour. Discretionary spending can be curbed and restricted to not more than 30 percent of your overall monthly household spends.Look for ways to supplement existing income. Look for gigs and projects to do that. While you might not earn much initially, it certainly additional security.
Invest in yourself
In a Nutshell
Nobody has the crystal ball to foresee the future
. But regardless of whether recession happens or not, it is always a good idea to put your finances on a stronger wicket, to ensure a goodnight’s sleep at all times.