How To Prepare 📉 Yourself For Recession? 4 Tips!

Governments and central banks 🏦 can twists the definition pertaining to recession – however, a popular definition whether to consider a country in recession is to see if the last 2 quarters exhibit a declining GDP.

From the chart below, for the USA 🇺🇸, it is most likely that the real GDP growth in Q2-2022 would still be -ve due to a lot of factors. Even if the recession is not declared by definition, the indications are all over for a common person living anywhere in the world to brace for a bumpy ride. Why we are talking about the US here? Because the data available from the US is most reliable and less flawed.

US quarterly GDP growth %age change from the preceding quarter.

In this writeup✍️, I shall touch upon some basic rules of navigating through recessionary period. It is imperative to understand the basics of personal finance regardless of the country of residence, whether its the US or Pakistan 🇵🇰. Lets talk about 4 tips that you may seek value from!

1 – Emergency Fund💰

Stick to the basics of keeping 6 months of running expense in emergency fund, some conservatives put this number to 12 months of expenses. Regardless of the school of thought you follow, 6 months is the bare minimum. It has to be noted that the amount is equivalent to your 6 months expenses, not income – so the more conservative you are in your spendings, the less requirements are there for your emergency fund!

The important thing here is how you keep the emergency fund. You dont have to keep the fund in 100% liquid format, a mix of fixed deposits (Islamic or conventional) would work depending on the situation and illustrated below:

_{Savings account – 20% [accessible within minutes]}
_{Cash invested in fixed deposits (higher return then savings account) – 40% [accessible within 2-3 days notice]}
_{Investing in high yielding money market funds (higher returns then fixed deposits) – 40% [accessible within a week’s notice]}

Above is just a hypothetical illustration 🗓 of how you can adjust your portfolio of emergency fund, you can deviate from it as you like keeping the basics right.

One important thing to note here is the use of credit cards (watch the video here about the benefits of credit cards) – One can rely heavily on credit cards for emergencies as you have ample time to payoff the bill and this time can be crucial while you gather up the cash invested elsewhere. However, don’t try this until you are not sure how the credit cards work.

2 – Keep on Investing

If the company is good, whether its from Pakistan or from the USA, it will keep on generating revenue and will be distributing to the shareholders (in most cases). I am a big believer in Apple and wrote this piece a while ago when I started investing in apple stocks with SARWA, which you can too specially if you are living in the UAE with below referral code and earn $50 with your first investment towards “SARWA invest”.

💡 Invest in SARWA with this link and get $50 as referral bonus once you fund your new SARWA account.

The charts below show the how Apple has been consistent in paying out dividends with the share price increase – so in the long run you can be rest assured (unless for a big setback) of good cashflow.

Below screenshot is from my SARWA trade app which I use to trade individual stocks and see how I have been rewarded with dividend 😁

Now, this is not limited to US stocks. Engro fertilizer along with other stocks like Hubco and multiple others have shown resilience and kept on growing along with providing dividends. I made multiple videos on dividend paying stocks in Pakistan such as THIS, THIS & THIS.

Message here is never to stop investing in good companies at fair value whatever the economic situations are. This will help you in 3 ways:

Learning the stock market while investing.
Keep on dollar cost averaging for the stocks to avoid big risk
Your ability to understand the businesses and this will surely help while you make your own venture one day!

The investment habit should continue either its a recession or a boom time in all cases over a long period of time – specially if you are young. This strategy needs to be revised once you cross the age of 50, which I discussed in this video.

3 – Physical Assets

The finance pundits are always of opinion that house or a residential property is not a best of investment decisions. Well on paper it might look like that if you cherry pick specific time frame – however, if you do analysis on a longer period of time along with the peace of mind a fully paid off house (or where you have major equity in the property) provides is amazing. Apart from your own house, a physical asset like gold (although its not recommended more than 10% of the total net worth – discussed here) & rental property or income generating asset like a commercial vehicle is a bonus during such troubled times.

Luxury to have multiple properties is not easy for a common man, however, I would still stress to strive to have a residential property with major equity to have that peace of mind so that the thought process is not always chasing the ways to payoff rent in inflationary environment.

Humor has it 😇 pic.twitter.com/GxRAWIXX3r
— Wali Khan 🇵🇰🇦🇪🚀 (@wali_2k) May 13, 2022

Originally tweeted by Wali Khan 🇵🇰🇦🇪🚀 (@wali_2k) on May 13, 2022.

4 – Become Indispensable

This is something people forget most of the time. It has to be noted, of all the investments you do, the most important one is what you invest in yourself. Investments like real estate, stocks etc will help you in a very long term to become financially independent – however, it is most important to improve your monthly income and more than that to become an indispensable resource for the organization you work in.

Although in this day and age, no one is indispensable, but one should strive to become a resource which cannot be ignored till the very end. Having said that this should not come at the cost of becoming toxically involved in the work but to be more productive like we discussed in this video here.

Being productive at work will enable you to be more confident in the day job with less fear of being laid off while at the same time being efficient enough to explore multiple side hustles.

About Myself

I post 3 videos on my YouTube channel on the topics of productivity & personal finance specifically for expats & in general for wider Pakistani community. Besides this, I update this website / blog on weekly basis so do visit regularly – To get value out of the content, please consider subscribing both the YouTube channel and the newsletter.