How to survive a recession: Follow these 10 rules

Recession is in the air. Whether we admit to it or not, signs of an economic slowdown are around us. We could argue that India will be immune, or not. We could debate whether the West will be more impacted than the East. We might indulge in speculation about the dollar and oil. But our circle of control is what needs action, not the larger circle of concern that involves all these macro questions.

First, prepare for risks to your regular income. The degree of impact may vary depending on the sector you work in, the strength of the firm you work for, the elasticity of demand for your goods and services and many other factors you don’t control or cannot realistically estimate. But a drop in demand for products and services can mean low or no increment, cut in pay, cut in job role or loss of job in the extreme. Do not be reckless about changing your job, or seeking new roles. Stay with the tested waters when the going is tough. New jobs may be difficult to find. If you can supplement your income with other moonlighting opportunities, or part time work opportunities, pick them up before job markets get into a deeper slump. Postpone decisions to quit or to take a break. Retain multiple earner status for the household.

Second, do not fish in muddled waters and try to make investment decisions you risk considering as ‘smart’. This is not the time to speculate on the dollar, oil or gold. You will risk buying at the top and holding on through a slump and make yourself no money. During a recession, businesses do not make capital investment decisions. Nor should you. Do not buy real estate because someone told you that property will never lose value. Be aware that many assets are inflated in value when demand is high and interest rates are low and will fall steeply when those conditions reverse.

Third, business failure is a common occurrence in a recession. Weak businesses are at higher risk, and new weaknesses will show up as the situation gets worse. Do not speculate on stocks and on unknown names. Keep off IPOs and small-cap stocks and set aside the temptation to think of a new name as the next multi bagger. Stick with the known and established names that will likely remain standing during tough times. Large-cap stocks and funds are better avenues during tough times.

Fourth, do not start a new business yourself. This is not the time to try entrepreneurship. When interest rates are higher, and demand for goods and services are lower, you will struggle to establish and grow. Profit making businesses come under stress during recessionary times and resort to tactics to manage unsold stocks and underutilised capacity. Go back to the first point and secure your income.

Fifth, do not sell your stocks and property in panic. Falling prices are not the right times to sell. Timing the markets almost never pays the common investor. Do not assume that you have acquired good trading skills to time and play economic cycles. Unless you are in financial distress do not liquidate your assets when prices have fallen. Ride through after making sure what you have is of good quality. Staying invested with quality stocks and assets is your insurance against permanent damage to your wealth when economic cycles turn.

Sixth, do not acquire new debt. Put a brake on borrowings. In an environment of low job security, low demand for goods and services and high interest rates, high household debt will become difficult to service. Cut back on debt if you can and live within your means. Even if you cannot save as well as before, make sure you are not adding liabilities at the wrong time.

Seventh, if you are among the lucky ones who have regular surpluses to invest, choose debt over equity. Debt is your cushion against fall in equity markets and an income supplement during tough times. If you stay with short term debt, you will also enjoy the benefits of a rising interest rate as Central banks tighten money and raise interest rates. Overweight debt in your monthly allocations of your savings.

Eighth, reduce expenses wherever possible to keep the income adequate for essentials even if there is a pay cut or job loss. Cut back on discretionary spending and be aware that these responses across households will dampen demand for goods and services even more. Cutting back is the natural response of households to income risks and to higher interest rates. Do not assume you would be an exception.

Ninth, upgrade and update and prepare for an expanded role for yourself. Recession is the time to push all your assets to protect your income and wealth from erosion. If you invested in debt products and held back from investing in equity, you must pay attention to the human asset and invest in it so any deterioration in value is checked. Nothing is lost in a recession if you remain alive and well and employable. The opportunity to start over always beckons.

Tenth, do not assume it is the end of the world and make absolutely pessimistic decisions. A recession is part of an economic cycle and one has to ride through it until it turns around. Resilience is built when you face downturns and overconfidence is tempered when assumptions go wrong.

There is a time to be conservative with the job, income and investments and to go on with life without too much speculation and optimism. Focus on survival, the time to rise and thrive will arrive soon after. The ideas of circles of control and concern are precious to think about. One can spend a lot of time debating the macro level events, focusing on the news headlines and behaving as if the world’s well being is at stake. The concerns about these high level happenings seem important and valid to many. But our circle of control is where our actual task lies. Our job, our income, our debt, our assets, our expenses and the well being of our household are matters of our concern that need us to take action. Focus on those and you won’t miss much ignoring the alarmist macro debates.


(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

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