How to Manage Your Finances during an Economic Slowdown
whether you are a seasoned investor or a newbie, during a slowdown you have to be more cautious about how you manage your money. Here are a few points to consider
Friday April 10, 2020,
4 min Read
A cursory glance at news headlines will tell you that the economy has taken a hit, both at the national and global level. Whether it is mass layoffs at leading companies or rising inflation, we are looking at an economic slowdown that we need to brace against. At times like this, the best advice would be to ensure that your hard-earned money is safe and secure while also providing you with good returns over time. Whether it is just creating a savings fund or investing to get higher returns on your savings, whether you are a seasoned investor or a newbie, during a slowdown you have to be more cautious about how you manage your money. Here are a few points to consider:
- Portfolio diversification: Don’t put all your eggs in one basket, as the old saying goes. This means spreading out your savings across various investment products such as fixed deposits, Systematic Investment Plans (SIPs), mutual funds, gold bonds, etc. This way, you can rest assured that even if market conditions cause losses in one, it is offset by the others, thus maintaining steady returns overall.
- Have an emergency fund: This is especially important in times of a looming economic crisis. Again, the old adage, ‘'expect the best but prepare for the worst’' holds true here. The conventional wisdom is to have at least 6 months’ worth of living expenses saved in your emergency fund. This should include rent or EMIs, school fees if you have children, payments for utilities, groceries, fuel, insurance premiums, etc. This can be saved in a fixed deposit, a liquid fund, short-term debt fund, or even a savings account. Make sure you calculate emi and don’t dip into it no matter what the temptation unless it’s absolutely needed!
- Think twice over job changes: While it is always tempting to take a new job offer when it pays significantly higher, especially in times of an economic slowdown, make sure you do your research on the company and the market conditions before you make the jump. This may not be the best time to sacrifice job security over a higher salary.
- Keep your health insurance: Health insurance premiums can easily be the first casualty at times of an economic slowdown. There is always the feeling of being invincible when it comes to health, especially among the younger generation. However, you never know when a health issue can strike, whether it is the form of an injury, illness, or accident. At times of rising healthcare costs, a hospitalisation or surgery can set you back by several thousand rupees or lakhs, not to mention your peace of mind and loss of income if it is the primary or only breadwinner. That is why it is very important to keep your health insurance policy active no matter how unimportant it may seem to you when you are in good health.
- Skip the real estate for now: Real estate is always lucrative in the long run, but when there’s an economic crisis, it is often the first to go downhill. This makes it the ideal time to buy an apartment or house if you are looking to stay, but the wrong time to buy it if it is purely for investment purposes. Even if you are looking to buy a property, try to do it by paying upfront as much as possible and taking only the minimum amount as a home loan. This is because property values are predicted to appreciate only very little over the years, but home loan interest rates are still quite high.
- Invest in SIPs: Investing in a Systematic Investment Plan (SIP) is a good idea now because you can get more units for your money than before because of the decrease in the Net Asset Value (NAV) of funds during an economic downturn. You should also be ready to be in it for the long-term as that is when you will get the maximum returns out of your SIP.
- Invest in gold: While gold has always been an attractive investment option for Indians, today you have more options than just jewelry. You can invest in gold sovereign bonds or Exchange Traded Funds (ETF). This makes it easier for safekeeping and can also be easily traded online.
With a combination of diligence and cautiousness, you can easily ride the wave of unpredictability during economic slowdowns and land safely on the shore of financial security.