Recession is on every persons mind these days. Since 2008 the job market hasn’t been doing good globally, except in some sectors or in some countries. The earning potential of an average earner has gone down due to cost cuts by large & small organizations. The annual inflation of 6-8% is eating away the value of dollar, pound, sterling, Yuan, Rupee every year. Human population on the earth is growing almost at same rate as before and in some countries even faster. That means demand for resources is on the rise. Depletion of natural resources (pure air, land, water, plants, minerals) is causing rise in prices of consumable items. Unplanned expense adding burden to the monthly budget. Tax burden cutting the net salary available to spend. The recessionary tide doesn’t seem to be easing out since past 5 years and how long would it continue is left for anyone to guess.
Though the problems of recessionary economic conditions look distressful, there are ways to ride on this recessionary tide. Surfers usually ride on the surfing board in sea till the point they cannot surf ahead. Then what do they do? They wait for the big tide to come along to ride underneath it using its force to navigate. This practice is now extended to ride the financial tide. Let us look at it in detail.
Many people expect miracles to happen with economy. miracles happen, however they are rare. If there is one in 10 million chance of winning a lottery why waste time.
Solution to riding the economic tide of recession is distributed in easy steps.
Step1. Calculate your net worth. While most people aren’t aware of how to calculate their net worth let me give you a simple way to calculate it. Have pen and paper handy. Write down all the assets (current property value, cash, bank balance, current value of your investments in mutual funds, stocks, bonds, current value of gold, silver etc). Sum it up. The write down what you owe. How much is the balance loan amount – personal, home or commodity loan or any other outstanding. Subtract the assets total from the debt total, that will give you your net worth. If your net worth is close to zero you aren’t saving enough or you have taken loans that are beyond your capacity to digest.
Step2. Once you know your net worth, look at what returns you are making from your investments. If you have a home in addition to where you are living, check if it is giving you a return of 5-6% minimum of the property value as rent. If not, then re-rent it or sell it. People hold on to their property waiting for the ideal price and that rarely happens. If your property is worth say 100,000$ which these days might be the lowest price in most of the towns. When you sell it and earn a handsome cash, this cash now can be deployed to income generating sources. Divide investments in to 3 buckets. viz. aspirations bucket, Growth bucket and safety bucket. Invest 1/3rd of the amount in high returns and high risk avenues like buying blue chip companies bonds (*they should be high trade volumes). China has booming housing demand. You may consider buying a commercial property in Shanghai. It will give a decent cash flow. Yet another good investment is buying foreclosure property and selling it at a premium price. You do not have to invest in to entire price of the property. Consider funding a business (*Do it with the help of someone who has already done it successfully). The second bucket is an investment in Gold, or land or food. You may consider setting up small kiosks (coffee/coke vending machines). This investment will also generate cash flow. The third bucket is safety bucket. Put 1/3rd of your money in government bonds, fixed deposits. If you aren’t in job you could incorporate yourself and get tax advantages on the income you draw from your business.
Step3. Look at alternative means of income generation. Work part-time. Working 2 hours part-time every day will give you an extra income of 5 days in a month. If you are earning say 3000$ a month, working 2 hours extra gives you an additional cash of 600$ a month. Not bad isn’t it. This is the minimum you could earn. Extra 600$ means it will take care of your monthly food expense, travel if you are taking bus or train plus it will leave you some spare cash.
Step4. Work on your skills. Most people do not know when they polished their axe. Their skills are outdated and they are less productive. Spend some time polishing or brushing up the skills you get paid for. Along with it acquire new skills. If you optimize on 1 hour each day and spend 1/2 hour learning new skills you will easily acquire a new skill in 3 months. You increase the probability of landing a better job, better pay or creating your own job.
Step5. Work on your body. If you are overweight, you are carrying extra weight, extra lethargic attitude, extra discomfort with you. It will always limit your potential to grow. Spend at least 1/2 hour exercising. You could join a gym, yoga class or simply run in the morning. This will give you that extra energy you need to go extra mile in your career.
Step6. Keep a tab on expenses. Divide them in to Absolute Must, Desirable and Luxury. Spending on grocery is a must, spending on medical expenses is a must. An absolute must is an expense bucket which is without money will make your living impossible or uncomfortable.
The desirable expense is paying for cable TV, dining out expense. The last bucket is expense on a cruise, on dining in 5 star hotel, on buying Armani coats, on buying Tag Heuer watch.
Use the golden rule. Create an asset to pay for liabilities.
Step7. Form a habit. To acquire new skills, to do the workout, to invest regularly a habit is required. It requires a character to resist temptations to buy expensive items. Set goals and accomplish them through executing daily tasks. This will create momentum and take you closer to the realization of goals. Read books.
These 7 steps are the steps for riding the recessionary tide. Good Luck!