In a Deep Cuts episode of the Netflix show Patriot Act, the audience asks host and comedian Hasan Minhaj about his thoughts on the looming recession in the United States. Minhaj says what terrifies him is how the news headlines always talk about impending doom but never tell you exactly what will happen. This fear is understandable. None of us likes to be caught unawares. But the problem is that even financial experts don’t know for sure. It’s a game of probabilities and not certainties. Is it certain that a recession is coming? No. Is there a recession on the horizon? Yes, there is a high probability of one. In a world where our Uber arrivals, Amazon deliveries and Swiggy orders ensure we are never in the dark about date, place and time, the uncertainty of the exact onset of a recession induces a small panic attack.
Economists in the US have been predicting a recession for over two years now. The country is witnessing its longest period of economic growth in history (albeit one of its slowest too) and at some point, the business cycle is bound to change. If the US goes into a recession, the ripple effects would be felt in India too. Larger information technology firms in India still depend heavily on revenues from the US. This means that a lot of jobs here are inextricably linked to what happens there.
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While the question to Minhaj was about an American recession, it may well have been about one in India. Our economy is experiencing a slowdown. In fact, it may have started three years ago – remember demonetisation in November 2016, followed by the chaotic rollout of the Goods and Services Tax in July 2017? Even before that, the methodology to calculate economic growth (as a measure of gross domestic product or GDP) was changed in 2015, adding to the confusion.
According to the latest figures released in August this year, GDP growth in the April-June quarter hit a six-year-low of 5%.
In this gloomy scenario, Indians, particularly the young workforce, are increasingly turning to Google for advice on dealing with the economic situation – in the absence of clear answers from the experts. The last time we had so many people asking Google if India was headed for a recession was in 2011 and 2008 – both years that witnessed a slowdown coinciding with a global financial crisis. The Google Trends graph below shows the trend in searches for the term “India recession” between January 2004 and September 2019:
How to be recession-proof
So, what is a recession? Economists have their own definitions for the term – a common thumb rule being a period of two consecutive quarters of contraction – and often split hairs on whether it’s a slowdown or a recession. But for us regular folk, does it really matter? When the economy stutters, we feel the pinch. Asking people not to panic is easier said than done. In a slowdown, even our jobs could be on the line.
In a desperate measure to prop up the economy and address the concerns of equity market investors, the government slashed corporate tax rates on 20 September. Lower taxes mean higher net profits for companies (if everything else is constant). And, hopefully, this translates to no job losses and higher incomes for employees.
Whether this holds true is yet to be seen. But for now, let’s look at what we can do to make ourselves as recession-proof as possible.
The 8-point checklist
1. Job
Even in jobs that seem secure, a recession means that company management will cut costs and most people often don’t see a lay-off coming. It is advisable to keep your resume updated and ready. There are numerous free certifications available online and including them is not a bad idea. And don’t forget to network and reconnect with old contacts.
2. Expenses
This is the best time to take a deep look at your budget and plug any leaks. For instance, if you have subscriptions for Netflix, Amazon Prime, Hotstar and cable TV, why not make do with just one? And if there are expensive club or gym memberships that you have bought but never use, now is the time to cut the cord. Monitor your credit card expenditure, especially if you’re trigger-happy at the swipe machine.
3. Income
Try to create a second source of income. It could be as simple as teaching students in the neighbourhood. Or, if you have a special talent or passion – baking, dance, crafts, anything – try to sell it. People prefer home-made to store-bought often enough.
4. Debt
If you have loans, prioritise high-interest debt, such as credit card dues. Even if you pay the minimum amount due, you will still be charged interest on the remainder, which could be as high as 36% annually.
5. Emergencies
Check on your reserves or emergency cash. While most planners recommend stashing away funds that would take care of three months of expenses, having 12 months worth is better at keeping stress in check.
6. Health
Make sure you have adequate health insurance cover, apart from the one provided by your employer. Then, even if you are laid off, you will have something to fall back on should an emergency arise.
7. Portfolio
Take a top-down view of your finances to see if you are on track to meet all your goals, or if some tweaks are needed. When companies experience a slowdown, it reflects in their stock prices. This means the equity component of your portfolio will experience some pain. However, if your equities aren’t linked to short-term goals or if you’re not near retirement age, stock market gyrations should not bother you much.
8. Impulse
In his book ‘Reasons to Stay Alive’, Matt Haig says the world is increasingly designed to depress us and that if we are happy with what we have, we won’t need more. Remembering this important lesson, ask yourself if you really need to buy that iPhone, which is now available at a lower price. Avoiding social media might also help curb your expenses. I recently came back from a vacation in the US but when I see photos of friends holidaying in Goa, I’m tempted to head there too. People spend because of the Fear of Missing Out and social media does not help.
For people under 30, the next recession will probably be the first one in their working life. Remember that recessions are not permanent and that growth will follow. Keeping some of these tips in mind can help you build a solid financial base, whether you’re trying to weather an economic recession or not.
Nithin Sasikumar is the co-founder of Investography, a financial wellness company based in Bengaluru. He can be reached at nithin@investography.in or on Twitter @NithinSasikumar