6. Spend extravagantly
Live frugally — or at least, live within your spending means.
This is another tip that dictates common sense, but not many people are aware of how expensive their lifestyle can get. Unless you perform a mid-year financial review, chances are, it’s easier and more comfortable to remain complacent with our current way of living.
As troublesome as it may be, re-evaluating our budget and redefining what our needs and wants are crucial to gaining better leverage amidst the turbulence. Examples of reassessing your expenditure habits can be delaying major purchases, re-classifying your non-negotiable and variable expenses, and so on.
You might even want to consider overhauling your grocery list, for example, buying house brands instead of brand-name products. While you’re at it, you should also compare prices before adding a product to your shopping cart.
In the meantime, check out our detailed review on the best grocery credit cards in Singapore 2022 to fund your supermarket runs.
7. Forsake your emergency fund
At the same time, your emergency fund should not be taking a backburner at such an important time. Now more than ever, your emergency fund would be coming in clutch to withstand financial pitfalls the recession might be threatening you with.
Be it unemployment, loss of income, sky-high inflation and interest rates or anything else, your emergency fund should tide you through these moments.
Essentially, your emergency fund will be your saving grace when you least expect it. So while there’s still time, don’t neglect it and funnel your money elsewhere. Continue to be diligent and save at least three to six months of your salary in a high-yield savings account or cash management account.
The focus here is that you’d want high liquidity for an easy and swift withdrawal of funds whenever needed.
Read more: Fixed Deposits vs. Endowment Plans vs. Cash Management Accounts: Which Should You Choose?
8. Neglect your side hustle or additional income streams
If you haven’t already, consider establishing supplementary income streams either through side-hustling or securing a steady passive income. During recessions, few people with a single salary can look toward the future with confidence. For most, it doesn't give enough financial security.
Therefore, setting up additional forms of revenue (no matter big or small) helps safeguard the days ahead — especially if you have dependents like children or elderly parents to look after.
However, we do stress that these should be done only if you have enough financial resources or capital in your savings and emergency fund first. The rule of thumb is to always establish a foundation first, before attempting to build upon other financial pathways.
9. Succumb to the “animal spirit”
Now, this is an interesting one. The term “animal spirit” was coined by John Maynard Keyes, the founder of Keynesian economics and father of modern macroeconomics.
It refers to the behaviour or mentality of how people arrive at a financial decision.
In the context of a recession, this applies to consumers’ behaviour with buying and selling securities under great pressure and uncertainty. Since the stock market and its fluctuations are influenced by millions of speculative transactions, it’s highly vulnerable to volatility.
To refresh your memory, the Dot-com bubble burst was a stock market bubble in the late 1990s where many e-commerce companies suffered and were forced to shut down. One of the prominent surviving firms during that period was Amazon.com — only because they sold S$672 million worth of convertible bonds to bolster their financial standing. This decision singlehandedly saved them and marked the dawn of rapid growth for them.
Self-preservation and downplaying the real risks of recessions are also ways of eroding consumer and creditor confidence. Essentially, without proper transparency and risky investments made left and right, the recession would worsen.
From dollar-cost averaging to passive investing, there are various methods of investing for long-term gain. All it demands is patience and trust in the market’s recovery following periods of economic downturn.
Alternatively, DIY investing may be an option for some too if they prefer timing the market and individually transacting stocks.
Related to this topic:
How to Start Investing in Singapore: A Beginner’s Guide (2022)
7 Most Popular Types of Investment in Singapore
9 Ways to Hedge Against Inflation With Investing
Investing S$100,000: How to Build a Stock Portfolio
10. Put all your eggs into the same basket
Following the same train of thought, many experts advise diversifying your investment portfolio. Diversification brings an array of benefits like greater exposure to market opportunities and reducing portfolio risk.
Don’t believe us? Well, research shows possessing as few as 10 different stocks in your portfolio can significantly reduce your risk by 76% more than if you invested solely in a single stock. Exchange-traded funds (ETFs) or unit trusts (UTs) are viable options as a basket of securities (e.g. stocks, bonds) tracking an underlying index.
Investing in blue chip stocks is also relatively safe given that these are normally incumbent firms with high market dominance and excellent reputations. They tend to operate by dividend payouts. Examples include Nike, Procter & Gamble, Apple, DBS, OCBC, Capitaland, and more.
If you don’t want the risks of timing the market, a robo-advisor will automatically manage your portfolio using complex but systematic AI algorithms.
Related to this topic:
Syfe Singapore Review (2022): Multiple Portfolios For Various Investment Objectives
Review of digiPortfolio — DBS’ Robo Advisor
StashAway Review: Goal-Getting Investments Through ETFs
Build your investment portfolio with knowledge and confidence. Follow our step-by-step beginner's guide to start now!
11. Stop investing in recession-proof skills
As society continues to advance, there’ll be no shortage of demand for higher-order skills. In Singapore, possessing a diploma or degree has become the norm. What’ll set you apart from the common employee would be your skill repertoire.
An example of a higher-order skill gaining popularity over the years would be coding. This skill is used in a plethora of job scopes, including computer programming, web development, software application development, computer engineering, and the list goes on.
Moreover, it’s no secret that jobs within this industry reward higher salaries and considerable career progression.
Hence, the aim of learning higher-order skills is to finetune your skillset into something valuable, significant, and not easily replaceable. Because let’s be realistic: in an economy where workers are dispensable, the risk of retrenchment is always present.
What else goes down in a recession
We’ve talked a lot about how a recession affects individuals and businesses as a whole. But what about the government? How would they address a recession?
Governments typically adopt an expansionary fiscal policy in a bid to increase money supply and lower interest rates. Overall, less tax revenue is earned and more government debt is incurred.
Lowering taxes increases consumer disposable income and raises after-tax profits for businesses. Despite earning less tax revenue, governments might tap on reserves to continue funding government expenditure on final goods and services.
The objective of such a policy is to encourage output level increases, spur aggregate demand and expand the economy to produce at a new potential GDP in the following years.
Difference between recessions and depressions
Although recessions and depressions have common beginnings, depressions are relatively more severe than recessions. Overall, the economic impact of depressions is more dire, given that there is higher unemployment, steeper GDP declines, falling house prices, collapsing international trade relations, and even deflation.
But we digress. The silver lining in all this; multiple recessions have come and gone but there’s only been one major depression — the Great Depression — that lasted a decade in recent history. Therefore, there’s no point fretting over the what-ifs but rather, staying calm and focused on addressing the potential recession at hand.
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