scorecardresearchRecession on horizon? 4 ways to ensure financial security during these

Recession on horizon? 4 ways to ensure financial security during these tough times

Updated: 29 Sep 2022, 08:32 AM IST

Recessions are inherent to economic cycles. They are necessary too as they allow you enough time to assess the quality of your current investments while also helping to park money in good investments at attractive valuations. Irrespective of the longevity of the recession, you must have in place a proper strategy in place to take care of your finances.

Be careful with your money habits during this recession.

Be careful with your money habits during this recession.

The Bank of England has officially announced that Britain is now in recession. Experts believe that Europe may now be headed for a deep recession following the shortage of natural gas supply from Russia. This is not the first time we are witnessing a recession and it surely may not be the last. What matters is not how the recession affects us but how we respond to it. 

Recessions are common in every economy. Some recessions are short-lived while others may have a prolonged effect. Prices go up, there is sudden downsizing of the economy coupled with unemployment and inflation. Higher costs reduce the purchasing power of many people, thus, adding to their woes. When making ends meet becomes difficult, meeting financial goals through regular investments seems like a far-fetched option.

However, irrespective of why the recession came into being or how long it would stay, we cannot help but focus on our long-term financial goals considering how they are an important step to creating wealth in the future. This is all the more important if you are trying to save enough finances to ensure a similar or better lifestyle in the long run. 

If you have divided your financial goals and synced them to various life stages, it makes sense to pay attention to your financial well-being. While recession-like situations can do a lot of harm to impede your financial journey, you can use the same to bolster and strengthen your finances.

Many people complain about the effect of recession on their finances. However, there are ways by which they can shield their finances against its effect. These include:

Do not forego your savings 

Irrespective of how your monthly budget is affected because of the recession, you cannot afford to ignore your savings. Ensure that you save more than half of what you earn. Live frugally so that you may manage your monthly expenses with your remaining income. While it may seem challenging at first, consistent savings will go a long way in ensuring that you are able to continue with your investments and secure your financial future. 

Reassess your expenses and check which of them are essential and those that can be done without. This way you will not be able to plan your savings but be able to set a greater proportion when your income increases or the recession ceases to exist. 

Focus on your emergency corpus 

Bad times call for dire measures, which is why you cannot let go of the idea of building an emergency fund and maintaining it. A sizeable emergency fund can help tackle the insecurity and uncertainty brought in by recession. Though your health insurance policy will help you pay for your treatment expenses, not all costs would be borne by the insurance company. This explains the need to keep an emergency fund in place that would help to bear the costs of sudden emergencies.

Irrespective of how your earnings may have been affected due to the recession, you must have an emergency fund equivalent to at least a year of monthly salary. If you must dip into your emergency fund to take out some money, remember to replenish the same with your next salary.

Invest mindfully

You must refrain from parking your funds haphazardly. To ensure wealth creation, you must have a well-defined financial strategy in place. Investing in savings with high-interest rates or opting for financial solutions that promise a steady rise in profits will help you to build up considerable wealth over a prolonged tenure. 

Also, do not invest all your savings in equities. Your equity investments must not be more than 70 per cent of your total investment portfolio. Keep the remaining in debt investments such as debt funds, corporate bonds, fixed-income plans, bank deposits and more. Gold and silver also serve as good investment options apart from serving as the much-needed hedge against inflation. You can invest in precious metals through Sovereign Gold Bonds (SGBs), mutual funds and exchange-traded funds

Seek necessary insurance 

The damaging effect of recession can be more than you may think. This calls for insurance as a much-wanted security coverage. Don’t compromise on paying health and life insurance premiums. Remember that investments alone do not make up for financial security. Insurance is an important aspect too that we dare not ignore. 

It does not matter what kind of times we are living in. Relying on a well-planned financial strategy is a must to wade through the tide of recession. However, you must ensure financial discipline too. Sporadic investments without any well-chalked-out strategy will only cause you to lose out more money during the recession.

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First Published: 29 Sep 2022, 08:32 AM IST