Personal Finance Series
The best time to grow is in a recession.
– Ronald M Saich
Let me take you back to a childhood fable – “The Ant and the Grasshopper”. It was summertime, everything was merry and blooming. There existed a colony of ants who worked day in and day out, gathering food and taking it to their shelters to save up for the winters. The ants relentlessly worked super hard without any breaks. On the other hand, there was a grasshopper, who enjoyed every day of its life in summer without any fear of the onset of winter. It spent its day frolicking in the sun and laughing at the ants as it used to see them sweat the entire day saving up for the future.
Then came the harsh winter season, when ants were fed and warm in their shelter and the grasshopper was starving and cold due to no food and shelter of its own. Ultimately the grasshopper perished because of the nasty weather and the ants continued to thrive.
I’m sure by now you might have realized the moral of the story- Always work hard and plan for your future during the sunny days of your life.
With the ongoing negative sentiment in the worldwide economy, there is a clear indication of slow economic growth in the coming quarters which will impact many of our lives. Recessions are inevitable. But, a SOLID plan to navigate through the economic downturn is what is going to set you apart from the folks who are going to face the brutal impact of this downturn.
Why are recessions caused?
A period in which nations’ overall economic growth declines, people lose jobs, GDP falls, and companies observe a fall in revenue causes recessions. Since the recovery from the economic crunch in 2020 due to the Covid-19 outbreak, the growth in Stock Markets, worldwide, has been nothing but a Bubble! People injected tons of money purely out of greed to get rich quickly which turned out to be an utter fad. It was predominantly created due to super-high valuations with no strong fundamentals of companies. Adding to the cause is skyrocketing inflation rate which stands above 8.5% in the United States as of Q2–2022 (ref). You can refer to the below-mentioned video by Ray Dalio for a better understanding of the nuances of how the economy works.
There’s an age-old saying — Uncertainty, Discomfort, and Fear is where maximum growth happens, so to deal with times when nothing flies, I have a few suggestions for the readers to thrive through this turmoil and make the best out of it-
- Keep your job safe
Become a unique value add proposition for your employer by being an integral part of the team you work in. Even when the way forward seems blurry keep doing your best. Stickiness plays a crucial role when the job market is tough. A way to do this is by deepening your existing client relationships, even when the revenue drops your positioning should be so strong that your clients should trust you completely. - Maintain an Emergency fund
Let’s assume your monthly expense is $500, which includes your rent, food, and lifestyle expenses. At any point in time, you should have $3000 in your savings which needs to be in a liquidatable state at any given moment. This will give you a sense of cushion to battle a difficult economy. - Upskill yourself
Rather than thriving in the fear that all might go wrong, think about all the possibilities that could go right. Learning a new skill can never go wrong, rather it releases a happy hormone called Dopamine, which will play a vital role in uplifting your mood and creating a sense of accomplishment. Pick up your guitar and strum it up or open Canva and let your inner artist create beautiful designs online or try your hands on some content creation. - Invest in Index Funds
Set aside 5–10 % of your gross income and invest it in your country’s Index Funds, e.g. S&P 500 or Nifty 50 Index Funds. Investing in the stock market when it’s low is the best time to bear maximum fruits out of your investments when the market recovers. As Mr. Warren Buffet has very rightly quoted “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.
Remember — the market ALWAYS BOUNCES BACK! There have been multiple recessions in the past be it the Housing bubble crash of 2007–2009, or the Dot com bubble burst in the early 2000s, the economy becomes better and the bull run begins in full swing yet again. So hang in there with a single thought in mind – whenever you’re going through hell just KEEP GOING.
Pro Tip- Stay away from mainstream media as all it cares about is grabbing eyeballs by sheer fear-mongering, especially when times are tough. The best is to focus on the optimistic news and keep pushing through.
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