A recession is a period in which economies witness a significant decline. The consequences of a recession can impact your daily life as it leads to job losses, unemployment, drop in real estate and investment value. You may also witness wages stagnate or even decline during a recession.
All of these can have a major impact on your personal finances. Keeping all these factors in mind, it becomes essential to prepare yourself for a recession in a better way.
Below, we are going to have a look at some tips and tricks that can help you achieve financial independence during a recession.
Build Up an Emergency Fund
To prepare yourself for an unpredictable recession, you should start by working towards building an emergency fund. To build up an emergency fund, you must begin by making a note of your monthly income and living expenses.
While calculating your monthly living expenses, you must include your bare essentials such as your rent or EMI payment, basic utilities such as electricity bill, internet charges, essential groceries, online investments in life insurance, etc.
Once you have a fair estimate of your monthly expenses, you must multiply it by three or six, depending on how many monthsâ€™ financial cushion you wish to have for yourself. Building up an emergency fund can help you survive the recession without being financially drained.
Cut Down on Your Expenses
It is essential that you cut down your expenses and live within your means to take care of your finances in a better way. Make a monthly budget and stick to it. Do not overspend on luxurious things and learn to utilize your credit cards wisely.
All of these can help you strengthen your finances over time. You should also work towards widening the gap between your income and monthly expenses. This will help you inculcate the habit of saving, thereby making you financially more disciplined.
Clear Your Debts
If you have outstanding debts to clear, make sure that you do it at the earliest. By clearing your debts, you can save a large amount of money, which can further be utilized in making investments or building emergency funds.
If you use multiple credit cards, ensure that you pay your bills on time and do not fall in a debt trap. Since credit cards usually have a high interest rate associated with them, it is advisable to limit your credit card utilization.
Once your debts are cleared, your next step should be focusing on making the right investment.
Make Smart Investments
Smart investments can prove to be extremely helpful when it comes to achieving financial independence in times of recession. You must have a fair understanding of where to invest money. You must try to diversify your investments.
Nowadays, there are a lot of investment options in India, you can learn about them and invest accordingly. You can also make an online investment in ULIPs. Unit-Linked Insurance Plans (ULIPs) are contemporary investment products that offer investment and insurance under a single integrated plan. You must evaluate your risk-appetite carefully before choosing the right investment option.
Try to Have Multiple Income Sources
Since recessions can lead to job loss, having multiple sources of income can prove to be extremely helpful. If you are skilled and passionate about something, you can consider making it your passive source of income. This will certainly help you deal with a recession in a much better way.
Over to You
Now that you have a fair understanding of some of the key tips and a knowledge about the various investment options in India that can help you achieve financial independence, ensure to make the most of it and prepare yourself for an unpredictable recession.