Coronavirus recession 2020 - prepare yourself in 7 steps

Articles > Submitted by PatientInvestor on 4/20/2020 | Views: 218

Here are steps to take to prepare for the upcoming/ongoing recession and how to overcome this situation without getting affected badly.

Table of Contents

    Coronavirus recession 2020 - prepare yourself in 7 steps

    If we see history of couple of decades, we notice that after almost a decade, a recession occurs. The reason is always different everytime. This time happens to be due to Coronavirus and this is really a matter of serious concern seeing lacs of deaths in last couple of months. In other recessions, this was not the case.

    Coronavirus recession has forced companies, factories, shops, malls to shut down their operations, in a ways the whole world is at stand still. No economic activities are happening, everyone is under their closed door. This seems to be disastrous, though the number of coronavirus cases have started seeing a bit of improvement but till we have a vaccine available (that is almost a year away), these kinds of lockdown will keep happening depending on how the virus is spreading and no economic activities will start in full fledged manner. The actual worse effects of complete lockdown will be visible after few months.

    Before we proceed further and discuss steps to prepare for recession, let's try to understand some basics of recession.

    What is recession?

    Recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

    A typical recession lasts for almost 11 months to 18 months, however this Coronavirus recession is expected to last longer because of the health issue, infrastructure issue, inability to start economic activities in a normal ways etc.

    What happens in a recession?

    Typically everything happens that is not good for economy and a normal happy living. Like Economic activities slows down, people loose jobs, spending decreases, banks gets a lot of loan defaults (NPAs), stock market crashes, real estate market crashes, demand decreases. All these causes a lot of depression all around the world.

    How to prepare for recession?

    Though all recession comes to an end, however we should be ready to face it without getting defaulted and stressed while it is undergoing. Below are some of the steps to prepare ourself for the recession.

     

    1. Accumulate enough cash/liquidity

    The first and foremost important thing to do at the start of recession is to accumulate enough cash either in bank or in the form of liquid assets (if you do not have at least 10 months worth of all expenses as emergency money already). Now when you know that next couple of quarters are going to be painful. Ensure that you are not spending money that either you have or coming every month in unnecessary or luxary items.

    You never know when and how the situation is going to pan out for next couple of quarters or years, so have enough cash at hand that will give you and family peace of mind and confidence.

    In case you are having loan, opt for moratorium to increase liquidity.

    Do not put all your money in Bank account, put few months of expense in bank account and remaining in either FD (flexible/breakable anytime) and/or overnight funds or liquid funds. Generally these funds yields better return than fixed deposits. Do not opt for any instrument to park these funds that has lock in period or charges exit load (check before putting these money).

    2. Put extra effort in your full time job

    This is the time when you need to give the best to your company so that they are not loosing their clients and getting the best productivity from you (though this is the ideal expectation of the company from each employe throughout the year). This helps you make company feel important about you. Put extra effort in office or home for the job. Go one step ahead to satisfy your customers.

    3. Stay in touch, build your contacts, keep yourself updated

    Though you are putting more than enough effort in your job, you never know what company is facing at the top. So stay in touch with your colleagues, network to find another job in unlikely event. Keep yourself up to date with the market trend and requirements.

    For example, in the next couple of years and decades there will be enough focus on automation so update yourself on data analytics, machine learning, artificial intelligence, internet of things etc. In other sectors like pharma, telecome, auto, infra etc. ensure that you are on top of the recent development happening so that you do not find tough time getting another job.

    4. Check your spending

    Prepare list of spending each month, divide them into mandatory, likely, luxury and try to minimise expenses that is not mandatory depending on how comfortable you are financially. Minimizing luxury expenses are always suggested during recession, if you are not very very comfortable with your financial position.

    5. Pay expensive debts

    Expensive debts are those debts or loans that are taken on high interest rates like personal loan, property loan, mortgage loan etc. Make a list of those debts and try to pay them as soon as possible as they will keep consuming your cash every months. However ensure that you have enough liquidity in hand. If not, keep them and pay monthly EMI. It is always better to pay EMI (even a bit highers) than getting defaulted later or running out of cash for daily needs (because you paid the entire loan amount leaving nothing for you).

    6. Keep investing and look for opportunity

    If you have built enough corpus as emergency fund or have enough liquidty to survive a year or more including all expenses. Start investing slowly, look for opportunity during recession and put money into them.

    Generally, all quality companies shares are avaialble at huge discount during the recession period, if you invest in them now, you will reap very good profit in 4-5 years. So whatever extra cash you have, keep buying these quality companies.

    Same is applicable for mutual funds as well, NAVs of these funds drops drastically during recession, so keep buying in small chunks.

    If you have SIP (systamatic investment plan) going on, try not to close it. This is the best time to keep continuing it so that you get cost averaging benefits. However, do not do this at the cost of running out of cash.

    7. Think of Plan B, side business

    Its always good to have 2nd income. So this is also the time to start thinking about it. Look at your core skills, think how can you leverage them to get extra penny. May be consultancy work, online teaching work, digital marketing work, think of your hobby and how you can sell it to earn. Think of the problem people are facing. can you solve them? If yes, start thinking how and what can you do to solve it. Take baby steps and continue. These thoughts can take your to places, if done properly. 

     

    Hope these steps will help you pass through this recession happily. Happy living!

    Website disclaimer: The views, opinions, investment advices (if any) expressed by author on Sharefunda.com are their own and not that of the website or its management. Users are advised to contact certified financial advisor before making investment decisions.

    Submitted by PatientInvestor on Monday, April 20, 2020

    Patience doesn't cost anything but pays a lot in stock market!

    Response


    Your Reply


    Post as a guest

    Username
    Email
    Valid email id only.

    Latest Articles


    Get notification for new article

    Delivered by FeedBurner


     

     

    Share Market Best Practices

    • Do not borrow and invest.
    • Do not invest all your money in Share Market.
    • Do not invest all investible money in one company/sector.
    • Do not invest for short term.
    • Should follow SIP approach for investing
    • Do not blindly trust on multibagger tips or recommendations in media however get clue from them, research on your own, and then invest.

    + Educational drive from ShareFunda

    Notice
    This website doesn't encourage quick money making tips and tricks, quick multibagger call etc. Please refrain from posting such messages. If you found any such message, kindly let us know and we will take appropriate action.

    We do not have any paid calls, groups or channels.

    Latest Forums


    Latest Portfolios


    Latest Thoughts