Recognizing the need of the hour, finance minister Nirmala Sitharaman on 23 August sought to give a booster shot to the economy by announcing withdrawal of enhanced surcharge on foreign portfolio investors (FPIs), simplification of the goods and services tax (GST) structure, certain relaxations for the auto industry, and transmission of rate cuts to the end consumer, among other measures. However, can that be a quick-fix solution? “The problem has built over three years after demonetization leading to a fall in demand and job loss, especially among SMEs. Banks need more capital and NBFCs are facing credibility issues. It will take at least two to three years for things to get back to normal," said Madan Sabnavis, chief economist, CARE Ratings.
While it’s normal to feel insecure in times like these, the important thing is to create a defence mechanism instead. We give you some tips to ride through this phase smoothly.
SAVE THAT JOB
Job cuts are inevitable during an economic slowdown and there’s nobody you can blame. However, you can take some steps to reduce the chances of losing your job. It’s important to up your game so that your work gets noticed. Deepali Sen, certified financial planner and founder partner of Srujan Financial Advisers LLP, a financial planning firm, said, “Improve your skill set, both technical and soft, to increase your credibility within the organization."
Having a positive attitude and good interpersonal skills could come handy. Showing your willingness to help the company tide over this period will bode well if you are in a senior position. “Understand the position of your company and the thought process of the management. Usually, the management welcomes employees who are willing to help during rough times and try and retain them," said Suresh Sadagopan, founder, Ladder7 Financial advisories. Coming up with cost-cutting ideas can also help if you are senior enough in the hierarchy ladder. “A company with lower expenses may have less strain on its profit margin and may therefore not resort to firings," said Sen.
But stepping cautiously in your workplace goes hand in hand with keeping your finances in order, just in case you get the pink slip despite best efforts. To begin with, start building an emergency corpus if you don’t have it in place already. Financial planners say you should have at least six months of your expenses in an emergency fund. “Start by investing a part of your salary every month in an ultra-short term or liquid fund," said Lovaii Navlakhi, founder and chief executive officer, International Money Matters Pvt. Ltd, a financial planning firm. It will also help you tide over any emergency.
To be prepared for a medical emergency, however, review your health insurance. Now is also a good time to get yourself additional health insurance if you’ve been banking on the policy provided by your employer.
If you’ve been laid off, don’t lose hope. “Start networking with job consultants and industry veterans to find new openings. Though few in number, there would still be some openings," said Sen.
CURB YOUR SPENDS
One cannot emphasize enough on how important it is to keep a check on your spending pattern, especially during a slowdown. Cut unwanted expenditure, delay spends that are not urgent and, if possible, try to reduce essential expenses as well. “Take measures such as finding a tenant for the house that’s been lying vacant and invest any amount of surplus that you may have," said Sen.
Also, try and steer clear of debt. Typically, the Reserve Bank of India (RBI) cuts interest rates to boost spending in the economy during a slowdown, which could push you towards taking loans if you are dealing with a crunch. “As RBI cuts rates in a bid to drive consumption, banks are passing on the rate cuts to customers. This means that all loans, including personal loans, have become less expensive. It can be tempting to splurge but don’t go overboard," said Navin Chandani, chief business officer, Bankbazaar. Sen said behavioural lifestyle changes are the most difficult to reverse. While EMIs could help you in the moment, they could derail your finances in the long run.
However, all this doesn’t mean you deprive yourself. “You are anyway feeling despondent and it is at times like these that spending on something perks you up. But remember to keep everything in moderation," said Navlakhi.
DON’T EXIT INVESTMENTS
In the current scenario, the value of your stocks and returns from your mutual funds may have plummetted, but does that mean you panic and exit? Not really.
Each time the thought of redeeming your investments strikes you, remind yourself of your goals. “If you looked at one-year returns in a small-cap index fund in January 2018 which showed a return of over 50% and put all your available money there, you are now staring at a loss of over 40%," said Navlakhi. But small-cap investment, typically, yields good results in the long run. “Know what you’re getting into. That way, short-term volatility won’t disturb you," added Navlakhi.
If liquidity isn’t a problem, don’t stop those SIPs. However, Sen said, you can consider diverting your existing SIPs from long-terms goals to short-term funds if you think your emergency corpus needs a boost.
An economic slowdown could be a delicate situation to deal with but taking necessary measures will help you sail through the rough waters.