Opinion | Riding out the slowdown roller coaster

Whatever the situation, make an emergency fund and unlock the money in bad places

When a consumer goods firm says that it is finding five-rupee biscuit packs difficult to sell, you know the slowdown is not limited to white collar jobs and to people like us, but is biting down hard across the board. The signs of slowdown are everywhere—in the sudden job losses reported across the country, in the tiny increments that keep the income barely above inflation, in the stories that friends and family tell of small businesses struggling to stay alive, of poor sales off-take, of downgrading of stuff from premium to pure utility and then postponing purchases.

One way to understand this pain is to see it in the context of a larger change in the political narrative that wants to clean up the country—Swachh Bharat is not just about a physical clean-up but towards a cleaner way to do business and freedom from corruption. You can read more about this here.

While the old rules of the game were well-known, the new playbook is yet to be understood. Structural changes in the economy accompanied with ill-thought-through moves, such as taxing the rich excessively, the assumption that businesses are guilty till proven innocent and tax terrorism that squeezes the 5% that pay 95% of the Indian personal income taxes even harder, make this a tough time to be a middle-class Indian, specially when everybody keeps telling you—in the long term we’ll be in a good place. But what about today? What should you do today as the slowing economy bites down on lifestyle, future goals and, sometimes, even just staying afloat?

If you read the story about the ant and the grasshopper, then the answer is pretty clear. In good times, it works to be prudent so that bad times pass by, before the next cycle of good reappears. For those who lived through the 1991 crisis, this one is a small dip. But this still does not help us to negotiate the tight corner of today. Here are some thoughts on negotiating a slowdown.

One, make an emergency fund. Whatever your situation, this is one fund that must be created for the time that you may suddenly not have a job, or your business suddenly slumps. Six months of living costs, including EMIs, must be put away and clearly marked as an emergency fund.

Two, unlock the money in bad places. Look in your portfolio, you will see a lot of dud insurance products, that give you neither a good cover nor a good return. Take a one-time hit and let them go. Buy a pure term cover that covers you for at least 10 times your income and invest the rest that is freed up. Look at your real estate—if your money is locked up in poor-yield investments, cut your loss and get out of a tight corner financially, specially if you are without a job. Don’t get fixed on recovering the money you invested in that property—that time is gone when real estate would spit back double of what you threw at it.

Three, cut down on discretionary expenses. It helps to look at your expenses and see where the flab is. While you won’t get rich by giving up that daily cappuccino, but when money is tight, cutting out the non-essential spends is a good way to find the money to save. Rethink the addiction to brands—why pay somebody big money to wear their name on your clothes or bags or pen or whatever they sell as the must-haves for the cool people. Cool people are those who are debt-free with a nice fat money cushion for bad times. Cool people continue to spend on what they are used to when times are tough—because their lifestyle does not jump with every increment. So think through your spends—you spend for yourself or for talking points with your peer group?

Four, use this slowdown as a marker for the future and re-skill yourself. It is no good cribbing and ranting about your office, bosses and poor increments. If you feel that your skill-set is not being rewarded or is getting obsolete, think of what will happen in the next decade. Artificial intelligence, robotics and 3D printing are coming at the labour market at top speed. The job market will change drastically—don’t be like the floppy disk maker who did not change to pen drives as technology changed. Figure out your core skills. Read books that talk about both the past and the future. Understand that what is happening today has probably played out thousands of times across the time span across which humans have lived, worked, earned and died. Figure out what you need to do to re-engineer yourself. Then do it every few years. Remember that if your CV is not changing every year with something new to write, you need to rethink what you are doing.

Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation

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