How To Recession-proof your Finances by Sukant Senapaty
Keeping financial fitness is an art that many have not learnt. Having healthy finance means that you are living your life to the maximum with the amount of money that you earn, you are not short of finances at any given time and yet are able to save for the rainy day!
But there are certain things that go beyond our control! What if the economy derails and you are left out of your job? What if there is a downturn in economy and as a result Your employer resorts to cost-cutting measures and you find your salary reduced drastically! What if…
Recessions are now a reality that most of us have seen and there is no certainty when it is going to hit again! But there is nothing to lose your sleep about it! If you have done your basics correctly you would be able to inure yourself against recession completely. Let’s take this opportunity to discuss how this can be done!
Maintain an Emergency Fund
Most of us are lethargic to maintain emergency funds might be because we are wont to live from paycheck to paycheck. But it is always wise to maintain an fund to save you on emergency! Emergency fund should be 6-12 months of monthly expenses so in a case if you loss your job or become ill than your home can run on the Emergency Funds. Investing in insurance is a good idea and gives you the option of maintaining such kind of funds for long period of time.
Live within your means
It is always a good habit to live within your means. On the flip side it will save you from getting into debt. And then you can have enough to save for your future! You need to understand that your ability to earn will always fluctuate as what you are earning today will certainly go down after your retirement! But your habit to save will always keep you in better shape. So it is always better to cultivate the habit of living within your means and saving for the future.
Living within your means also refer that you shop very smartly. This means you need to understand what value passes on to you when you buy a thing. To determine whether a potential purchase is a necessity, ask yourself if you can truly afford the item, and do a cost-benefit analysis. You may find that some goods are just too valuable to pass up, while others are a waste of money.
Build up alternative channels of income
Building an extra channel of income is always a good idea. With job security so nonexistent these days, more jobs mean more job security. So if you lose one, you at least have the comfort of the other. So if you have been thinking about a consultancy business, or your own internet business, go for it.
Think of Long term Investments
So what if a drop in the market brings your investments down 15%? If you don’t sell, you won’t lose anything. The market is cyclical, and in the long run, you’ll have plenty of opportunities to sell high. In fact, if you buy when the market’s down, you will thank yourself later.
Diversify Your Investments
The basic tenets of investment require that you diversify your portfolio. Why? Because that gives you immunity against loss! How is that possible? Well have you ever seen the street vendor selling seemingly unrelated products like sunglasses and umbrella? After all, when would a person buy both items at the same time? Probably never – and that’s the point. Street vendors know that when it’s raining, it’s easier to sell umbrellas but harder to sell sunglasses. And when it’s sunny, the reverse is true. By selling both items- in other words, by diversifying the product line – the vendor can reduce the risk of losing money on any given day.
The same holds true for investment. Don’t put all your eggs in one basket! You need to diversify If you own a house and have saving accounts, put some money in stocks! try to build a portfolio of investment pairs that aren’t strongly correlated, meaning that when one is up, the other is down, and vice versa.
Follow the five tenets and you will be proofing your finances not only during the recessions but every time no matter where the market is heading for.