Recession 2023 Fears Growing Everyday: Here's How To Be Financially Prepared For It

With each passing day and month, the fears of a global recession are deepening around the world.

Warnings About Recession

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Not only have both the World Bank and the IMF (International Monetary Fund) warned about rising risk of recession in 2023, even Nouriel Roubini, the economist who had correctly predicted the 2008 financial crisis, has warned of a global recession next year. He sees a ¡°long and ugly" global recession, including in the US, by the end of 2022. And it could last all of 2023.

And that¡¯s not all. Even IMF¡¯s deputy MD Gita Gopinath, who this year became the first female and only the second Indian (after former RBI governor Raghuram Rajan) to feature on the former chief economist wall of IMF, had recently mentioned that chances of avoiding recession are really narrow, and warned that 2023 will be worse than 2022.

Just as the world opened up to the post pandemic era, the Ukraine-Russia war jolted the economies of many nations. The rising interest rates, cost of living crisis and unemployment amid mass layoffs have been a cause of concern this year in various countries.

With so much being said about the possibility of a global recession, it¡¯s natural to be worried. But the least you can do is be financially prepared in case a recession indeed happens. Guarding your financial health can help you sail through such uncertain economic phases.

Eager to know how? Let us help you strengthen your finances and be better prepared for a possible recession in the coming year.

1. Postpone your less important and big ticket purchases

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Just when the world is in deep worry of a global recession knocking the door, does it make sense to splurge money on something that isn't necessary and/or big ticket in size? Probably not. Amid economic uncertainty and the possibility of recession deepening, it would be wiser to postpone the relatively less important purchases, especially if they include big ticket purchases.

One of the world¡¯s richest persons and Amazon founder Jeff Bezos too emphasized on this aspect recently. Last month, he had warned consumers and businesses that they should consider postponing large purchases during the holiday season as an economic recession might be knocking the door.

Jeff Bezos had said that if you're an individual considering purchasing a big-screen TV, you might want to wait, hold onto your money, and see what transpires. The same is true with a new automobile, refrigerator, or whatever else. Just remove some risk from the equation.

Also Read: 'India Best Place To Work During Recession': Infosys Co-founder

2. Make creation of an emergency fund your priority

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It's often the rainy days that make us realize the importance of an umbrella, right? Similarly, its often a financial emergency which makes us realize the importance of having an emergency fund, also known as contingency fund or rainy day fund.

It is one of the most important pillars of a strong financial health. And how can you build up strong finances without a solid foundation? More so when economic uncertainty and recession fears are deepening.

So, a crucial step in remaining financially ready for a recession, is to have an adequate emergency fund. This fund acts as a cushion during financial emergencies that can be in the form of a sudden job loss, severe illness, disability, or significant pay cut. In all such adverse events in financial life which can temporarily hamper your income inflow, having an emergency fund is what can rescue you by helping you carry on with your recurring monthly expenses.

It is usually advisable to have an emergency fund with an amount equal to at least six months of your recurring monthly expenses. The size can be even bigger, such as 9¨C12 times the monthly expenses, if you can maintain that size. After all, the bigger, the better!

The recurring monthly mandatory expenses to factor in the fund is your rent, utility bills, loan EMIs, monthly investment contributions (like SIPs), insurance premiums, your children¡¯s education fees, etc.

3. Turn your mundane saving habits into creative ones

Yes you read that right. Saving money can be turned into a creative task too! Wondering how. Well, there are multiple money saving habits and tips that help you save some extra bucks without thinking of it as a mundane task.

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Some tricks to do so can include picking a denomination of notes and keep saving it, creating a spending jar for particular expenses or goals and breaking down the big goals into smaller but regular contributions.

To know in detail about these money saving habits, click here.

Also Read: Bank Of England Expects 5 Lakh Job Losses In UK Recession

4. Diversify your investment portfolio

Don't keep your eggs in one basket. This is a common saying many of us must have heard of, right? It holds true for investments as well.

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Having a diversified portfolio can help you sail through during economic uncertainties such as recession. Diversification means spreading your investment allocations into different assets and investment vehicles so that your overall risk gets minimized.

Having a concentrated portfolio with investment heavily dependent on a particular asset or investment vehicle, can increase the risk of your portfolio. Wondering how?

Let's take an example, if you only invest in gold, real estate, equities or say, debt securities, chances of you losing money when your portfolio¡¯s assets bleed during a certain economic scenario, are higher v/s a diversified portfolio.

Like, if you only have equity investments, in stocks or equity oriented mutual funds, then your portfolio is likely to bleed heavily when stock markets crash, leaving higher chances of incurring losses if you happen to redeem your investments at that time. In such scenarios, having other investment vehicles such as debt mutual funds and gold in your portfolio can help balance the risk, especially if they are inversely related, i.e if the price of one goes up, the other goes down, like equity and gold, equity and debt/fixed income securities.

But do not end up treating diversification as duplication. Both are entirely different. With diversification, you are investing in different asset classes to spread your risk, whereas in duplication, you are investing in different investment vehicles or asset classes which have similar nature and are not inversely related.

Example of duplication can be having two-three different mutual fund schemes of the same category in your portfolio,like small cap or large cap. Whereas if you have different schemes of different categories such as one of small cap, one of large cap, one of mid cap or debt mutual funds, that can provide your portfolio a diversification.

So, during economic uncertainties, if you have a diversified portfolio, the overall risk of your investment portfolio gets reduced, thus minimizing the chances of sitting deep in losses.

At present if your portfolio is concentrated on a particular asset class, try diversifying it by investing in different asset classes and investment vehicles to reduce your overall portfolio risk.

Also Read: How Sensex Has Outperformed World's Major Stock Market Indices

5. Take up side gigs for passive income

Whether you are an engineer, entrepreneur, doctor, journalist or earning your bread and butter through any other career, there is some hidden talent, creative outlet or hobby which we are passionate about, right?

So, when you enjoy doing something and are even good at doing it, why not monetise it by turning it into a side gig?

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While the list can be endless, some of the side gigs can be content creation, storytelling via podcasts, online tutoring, social media influencer, selling handmade, personalized goods, taking up vlogging, photography, delivering food or parcels part time, renting out the extra room of house, transcribing audio files, etc.

To know in detail about these side gigs, click here.

6. Remain credit ready with a good credit score if loan need arises

Simply put, credit score is a three-digit numerical representation of your credit history, and generally ranges between 300-900. It depicts your creditworthiness on the basis of your past credit card and loan repayment behaviour.

Why is credit score important, you may ask?

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Credit score is used as one of the first filters to be factored in by banks and other financial institutions while evaluating your loan and credit card applications. It helps the lender to assess your creditworthiness through past repayment behaviour, which also indicates the degree of likelihood of you defaulting on the loan/credit card repayments in future. A good credit score will depict you as more trustworthy, whereas a low or no credit score would make the lender take a cautious approach when deciding whether to accept or reject your application.

Having a low credit score may lead to rejection of your loan and credit card application. In case lenders go ahead to give you a loan despite poor credit score, chances are high that the interest rates applicable on your loan may be relatively higher.

So, with recession fears looming and economic uncertainty everywhere, shouldn't you possess a good credit score of around 750 or above so that your chances of getting a loan or credit card (if need be) get boosted? Click here to understand more about credit score.

Also Read: India Has Zero Probability Of Slipping Into Recession, Reveals Survey

7. Keep your resume updated

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While this is not entirely a financial tip, its no less important. This year has been a witness of how mass layoffs have impacted the livelihoods of thousands of employees worldwide, including India. From Amazon, Twitter, Meta, Intel, Ford, Goldman Sachs, Microsoft, to Byju¡¯s, Unacademy, Cars24, Swiggy and Zomato, the list of companies laying off employees has been increasing in length almost everyday.

But if you have fortunately not yet been impacted by layoffs yet, that does not guarantee a forever safety, right?

So it¡¯s better to keep your resume updated so that in case you happen to lose your source of income, you have your resume ready to quickly begin applying elsewhere.

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