scorecardresearchWorried about the recession? Here are 6 tips to prepare yourself

Worried about the recession? Here are 6 tips to prepare yourself

Updated: 04 Nov 2022, 12:35 PM IST
TL;DR.

The main problem that urban Indians face is unemployment. With the threat of a recession looming, it's essential to be prepared for any financial situation that may arise. Here are some tips on how to prepare yourself if you're worried about a recession

Six moves you can take if you are worried about a recession.

Six moves you can take if you are worried about a recession.

It's no secret that the economy has been looking rocky lately.

India's unemployment rate decreased to 6.43% in September 2022, the lowest level since August 2018, and after reaching a one-year high of 8.3% in August 2022, according to the most recent data provided by the think tank Centre for Monitoring Indian Economy (CMIE). However, the issue of unemployment is on our youth's minds.

According to an Ipsos survey, one of the main problems that urban Indians face is unemployment. With the threat of a recession looming, it's essential to be prepared for any financial situation that may arise.

Here are some tips on how to prepare yourself if you're worried about a recession:

Take stock of your finances

Take stock of your financial priorities and goals. Look at how much money you spend each month and how much money is coming in. If there's not enough money coming in, then it's time to make some changes.

Always have an emergency fund

This is a fund or a mixture of different saving options where you keep enough money to cover your expenses for at least three months (or more!). It's essential always to have this money set aside so that if something happens and you lose your job or need extra cash for unexpected bills. With an emergency fund, you don’t have to worry about paying rent or buying groceries for yourself and your family during testing times.

It is also important to increase your emergency allocation. You can also increase your funding by diverting unnecessary expenses such as eating out and entertainment to your rainy day account.

Make a budget that works for YOU!

It is vital to give every rupee a purpose before withdrawing from your bank account. A good rule of thumb is always knowing how much income comes in per month versus what goes out.

You can increase your savings by cutting down on luxurious spending if you think you need more savings. Or, you could allocate more money towards repaying your debt. Repaying high-interest credit card debt should be a priority, as you would want to avoid the credit card debt pinching you when you have other pressing issues to address.

So, it is essential to design the budget in a way that works for you and, at the same time, helps you to stay prepared for tough times.

Have an additional income source

If your income is tied to the job market or if you're self-employed, you may need additional income sources to get by during a recession. You can do this by having investments not tied directly to the stock market, such as gold and real estate. This additional income will provide some protection against falling wages and prices during times of economic hardship.

You can take on part-time work or freelancing assignments to supplement your earnings from your day job.

Start investing and do it for the long term

If you haven't invested yet, now might be a good time to start learning more about it so that when the economy rebounds, you'll have the knowledge needed to invest wisely and earn some extra income from your investments instead of relying solely on your job earnings only. Investing doesn't have to be complicated. A mutual fund is a popular investment option that caters to different types of individuals with varying risk tolerance and financial goals.

The best thing would be to stay invested if you have invested in the stock markets. You might want to pick up stocks at attractive prices when the stock market is on a downward trend.

Planning for your retirement is also important to keep up with inflation and ensure your money grows over time. You can invest only some things in one go; put away what you can afford each month and build up over time.

Diversify your portfolio

Diversification of an investment portfolio is necessary to ensure that your portfolio does not suffer heavily from market downturns.

You can invest a proportion of money in gold, commodities, real estate, and other tangible assets if you have a heavier allocation to equities, as tangible assets tend to perform well when the markets are underperforming.

In addition, you can focus on building a portfolio of dividend-paying stocks as it can help you make an alternate source of income.

Conclusion

We don't have any control over market movements and recessions. But we can prepare ourselves for it. Bulking up your emergency fund, creating an additional source of income through investments or a part-time job, reducing unnecessary high-ticket items and proper asset allocation are some ways to help you prepare for a recession. Staying prepared for a downturn is always a good move than being clueless about it.

Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.

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First Published: 04 Nov 2022, 12:35 PM IST