How to manage your finances during recession
The year 2020 started with a good note in India for equity investors, however, even before the first quarter of the calendar year ends, we are already into a bear market, at least technically. Most of the economists and institutions such as IMF are already predicting a global recession this year, which means a decline in the economic activity or negative growth of the economy. This also indicates a lot of layoffs and furlough. Surviving during such trying times is not an easy task. This will become tougher for those who are living from paycheck to paycheck.
During such times what is more important is to understand that most of the times, these phases are transient in nature and will not last more than a year. Although it looks longer during a recession, it is not long when you have a larger perspective.
Here are five things you can do to manage your finances during the recession:
1. Refinance your home loan: The EMI that you pay against your home loan remains one of your biggest expenses. Almost every time when we head towards recession or somehow land up in that phase, Reserve Bank of India (RBI) lowers the interest rates to stimulate the economy. It has already taken drastic steps to lower down the interest rates in the past and even in the current situation. If you're in a high-rate mortgage, refinance now. Not only it will lower down your payment but you'll also save lakh of rupees in interest over the long-term.
2. Do not splurge: If you are one of them whose finances are tight, resist the urge to splurge. The lockdown of 21 days announced by the government is keeping people’s urge in control but even after the government lifts the ban; wait until the recession gets over.
3. Secure your job or try to get a new job: Employers also feel the squeeze on such occasions so, make sure you are not a dispensable employee. Shape up if you have to and make sure now, more than ever that you are doing what's best for the company.
4. Boost your emergency funds: With the recession and rainy days ahead, make sure that your emergency fund is well-filled. Ideally, you must maintain enough savings to cover your expenses for the next three to six months. The expenses should also include your EMI and other fixed expenses.
5. Don't stress out: If you're struggling financially, do not panic as almost everyone else is going through the same phase. The need of the hour is to track your money closely and don’t spend more than you earn.