If you’ve been reading/ watching the news you’ll hear a lot about the downturn that India is suffering from. A lot of it sounds really scary. Some of it may be true. We are seeing a slowdown in consumption. While no one can accurately say why it is, my hunch is the hit the rural economy ( informal) took is what’s causing the pain. So till that is fixed we are not going to see a significant uptick in business.
But how does this impact you and me?. Well when demand is on the rise, jobs are plentiful. Salaries keep going up as the industry is willing to pay for talent. Since everyone can find a job industry is willing to pay more for skilled workers. The laws of supply and demand. High demand in the job market. Limited or low supply raises wages. And with the economy growing. Companies can offset higher wages with higher sales.
In a downturn, it’s the opposite. Sales start dropping. When the income dries up industry can no longer support high wages. Industries start letting go of people. Meaning more people in the job market. Fighting over a ever shrinking pool of jobs. Companies find more and more qualified people willing to work for less. This leads to either a stagnation of wages or a reduction in the same. That’s not good for you or the economy.
So how do you survive a downturn?. Well, I look to nature for inspiration. The organisms that can make the most efficient use of limited resources is the one that survives.
1. Less is always more
Think of your financial needs like a spirit animal. Infact the movie ice age is a great reference. You can either be a Wooly mammoth that needs 180 kg of food a day or a sabre-toothed squirrel like Skrat. I know I know. The idea of being an acorn chasing squirrel is not very glamorous. Further we don’t see sabre toothed squirrels anymore. But just think about it, which is likely to survive for longer in case of a sudden change in environment. Live squirrel is better than dead mammoth in my eyes at least.
Our financial needs somehow grow to mammoth size. Our paycheck stretched to the maximum. Comes in as a deposit and goes out as an EMI. Can lead you to despair, a situation like this can. If it’s reached those levels, see what you can jettison. If it hasn’t, take steps to ensure that it doesn’t. Read about the benefits of minimalism. Less clutter, more space, more time.
2. Get rid of your junk
Modern life is funny. The Avenues we have to chase our varied interests is tremendous. Plus with social media, we are exposed to so many more fancy things. Almost all hobbies are linked to objects. Take the guitar you have lying around that you never learnt to play. Or the snorkelling gear you bought but never used more than once. Or the fancy motorcycle you never ride anymore because its rough on your back. Our houses are filled with ghosts of our past. Appliances that you might have upgraded but didn’t sell the old ones. Old laptops you no longer use. Hobbies that germinated but never took root. Sports gear, tools, why keep hanging on to that stuff thinking you never know when you might need it?. Convert this junk into cash. Sell it all off to people who actually might use it. Look at sites like OLX if you must. The little packet of cash you recover might be the difference of paying an EMI and defaulting on a loan.
3. Build your skills
Today’s job market is all about reinventing yourself. So keep your skills polished and keep adding new ones as you go along. The old paradigm of join a company and your set for life is long dead. Today if you aren’t relevant you will get canned. The need for continuous learning is extremely high. So stay on top of your sector and the skills you need. Just for an instance data analysis is no longer the realm of scientists. The kind of data our modern society can generate means being able to decipher and make sense of data gives you a very serious head start over someone who does not know how to milk data. So, develop relevant skills, to beat the curve.
4. Downsize where possible
Have a big fancy car that you’re paying a loan on? What about a massive 3 BHK in the heart of the city? Again on EMI?. Downsize to the essentials. Your kid’s education, essential. Driving around in a beamer, downsize. Food on the table essential. Partying at the hottest night club cos its Friday night, downsize. Clothing essential. Running up a credit card bill for the latest threads at Vero Moda, downsize. Phone essential. Getting the I phone XI pro downsize.
Why have I added the “where possible” because an economic slowdown can sometimes mean you cant downsize on certain items. There just might not be buyers in the market ofr certain products (subdued demand). Or you might end up being upside down on a liability. Even here if worst comes to worst, learn to prioritise and think about residual value. For eg. If you have to prioritise between a payment for your house and car, I would prioritise the house. It will hold its value better as compared to having to give it up.
Its easier to downsize in a growing market. More people with money so better chances of you getting hihger realisation on whatever it is you are trying to downsize. Sometimes its better to take those opportunities early rather than to wait for the shit to hit the fan.
So take your pick and downsize where possible.
5. Invest in your health
In all the stress and running about we do we forget about this ultra precious element. Keep investing in your health. In monetary terms yes, but also invest time. Find time to do some sort of physical activity each day. Just 30 minutes of walking or running will help. It will give you more energy, reduce the risk of obesity, diabetes and cardiac issues. Plus it’s a great stress buster. Medical science rates it higher than a lot of prescription drugs you can take. Invest your time here you will be much better prepared to face the other challenges in life.
The 30minutes you exercise helps you find space to think. Disconnects you from your constant phone addiction and if you do it in the morning gets you some sun.
Over an above this don’t forget to invest in your own medical insurance plan. In case your job goes belly up, you might be left without coverage. So be prepared.
6. Avoid Pointless portfolio churning
In times like this you’ll hear a lot of advice from well-intentioned people about how you need to move your money out and move it to this scheme or that asset manager. Try and avoid unnecessary churning of your portfolio. More often than not, all it ends up doing is adding fees to the agent managing the change.
Caution: this advice does not apply to portfolio rebalancing. Consult your financial advisors. If they see the need to rebalance your allocation and adjust your debt/equity mix it might make sense. In times like this when equity gets cheaper, balancing by reducing your debt products weightage to increase stake in equities makes absolute sense.
7. Stay invested in the markets
I can’t stress this anymore, but a bear market is typically the kind where investors will dump their stocks and run to other assets. More so you will find that when the dust settles the time that you pulled out from the markets was just before a reversal. Most of us cannot time the market. So if you are invested in a diversified Mutual fund or an ETF stay invested. In fact I would go so far as to say use the fruits of all of your downsizing and invest heavily in the markets as they go down. Investing via SIP is another great route here. Set it an forget it. Stick to diversified well managed ETF / mutual funds and your bound to reap a bounty when the market revert back.
Times like today are difficult. The ups and downs of the market the news that we receive a lot of it is noise. Try and keep your head down. Keep doing good work and eventually you’ll find that there’s a great new dawn waiting for you.