Recession Time

Financial crisis started in US is sending shock waves throughout the world. Started in US and the signs are seen in Europe with many countries admitting their economy is moving to recession, same is true in Asian countries. This one the worst since 1929 great depression is sure going to impact India also even though the government is repeatedly saying there is no way Indian economy can go into recession. To understand the effects of this recession you don’t need to analyze many things just read the mind blowing figure of USD 2 trillion going into the rescue of firms, it is evident that this going to last for long and will leave lot of pain and suffering for the whole world.
Financial crisis mean the supply of money outpaces the demand, which result in liquidity crunch because of large amount of money getting withdrawn from the banks. This run (withdrawal from banks) can lead to collapse of the banks.
Indian government and policy makers are saying India is shielded from this entire crisis for many reasons, but if you analyze the reality it is sure we are also getting affected. Few factors showing up are the fall of Indian stock market, Liquidity crunch, week Indian rupee, and nationwide job losses. So it’s sure we are not going to get out of this unaffected.
So as an individual how we can sail through this period less affected, few things what we can do is:
Understand your debt in correct way which includes housing loans, personal loans and the devil named credit card. Housing and personal loans can be classified as good or bad category based on the amount you borrowed and the reason for taking the same. On the other hand a credit card debt is really an ugly one where in most cases you spent on things which are not at most necessity of life and the trap might make you taking up more credit on the card which even lead to living on the card by paying high interest and related chargers. (it can be as high as 40% )
Save during good times for the rainy days, that’s the basic low all know but never put in practice, when the days are sunny people consider their future cash flow into the current spending, which is the classic case of acquiring things using a credit card or personal loan. The moment crisis steps in you are in trouble as the future flow may not prove true. So save as much you can which mean 50 to 55% of your salary should go into savings.
Diversify your portfolio, sure invest in equity and in bad time with a longer perspective put cash into those equities where the corporate are big and fundamentals are right. Have savings account balance for emergency, now you have the option of sweep-in accounts where the un-used amount will become FD attracting a higher interest rate. Invest in government securities and insurance, insurance can give protection to your hard earned wealth and health.
So the mantra is stay calm through this period till the tide get over, and if you are not planned your finances yet, start it today. Safe journey.