There is no doubt the recession is the worst time man has ever faced. It started slowly in the United States and within no time engulfed the whole globe in its clutches and has affected each and every individual be it an American citizen, Indian or British, no one has been spared. There were many things from Indian system which were very less affected by the recession one of them was the Indian banking system. The Indian banking system is one of the least affected in the whole world and has been praised by many of the economists, financial experts. For example one of the banks Washington Mutual (WaMu) went bankrupt and was one of the biggest bank failures in the history but not even one Indian bank went to the extent of bankruptcy except there was a panic in many customers that the ICICI bank was getting bankrupt and as result of that the people stood in front of the ATM overnight to withdraw money. The banks were saved from this downturn because of the financial policies which were very well formulated which acted as an insulator for the Indian banks. If we want to be insulated from the side effects of recession then we also need to have a good financial plan in place and need to make the necessary changes so as to overcome the new obstacles thrown in by the recession.
The term recession has been appearing in the newspaper in the past one year almost every day and it has become a mediocre word. The recession has been defined as the Recession is not to be confused with depression. Recession means a slowdown or slump or temporary collapse of a business activity or to sound like an economist you can define recession as the state of a decline in GDP in two or more consecutive quarters. A person has to be financially insulated to escape the affects of recession it cannot be guaranteed that with this plan an individual would be not facing any difficulties but one thing that can be guaranteed is that the problems and the damage will be reduced to minimal. In this article we will be having a look at the various ways in which one can be financially sound by having a good financial plan.
Following are some of the precautions you have to take during recession.
Be it a boom period or financial crisis or depression or recession the investment is inevitable. The financial experts have opined that the person should and must be investing so as to ensure that he is financial stable and he must have more than one income streams. The plus point of having different streams of income particularly during the recession is that by chance you loose your job or there is a cut in your pay then the investments that you have made will continue to provide you with the same money inflow. Let us discuss some of the investments that are safe during the recession;
Share market is the secondary market where the trading of the securities takes place. The investment in the share market is one of the safe investments that can be done provided you have the right knowledge of trading or you have someone who has that. That someone could be a broker or the financial planner who provides you this service too. You can invest in the shares and reap benefits. For example if you have a good broker who can evaluate the fluctuation in the prices of the shares then you can purchase the shares of a company whose prices have fallen down and sell them off once the prices rise. This is just one situation there are other situations too like purchasing debentures or preference shares or equity shares of a company which is performing well and then you will be getting the interest on the debentures or share of profits made.
See Also: How To Invest In Stock Market With Little Money?
Banks are the second avenues where we can invest during the recession. The banks offer various kinds of offers such as keeping the money in savings bank account or keeping the money as the fixed deposits or recurring deposits etc. Although the interest rates have come down but the returns are sure and the exact amount that you are going to get in the form of returns can be known at the time of investment.
The suggestions given above apply for everyone now let us have a look at the suggestions for small business owners and micro-entrepreneurs
Although the financial plans are not decided by the government and are done by the person concerned but the changes that occur in the economic conditions such as inflation, Budget, GDP Growth, variation in the interest rates have a profound effect on the financial plans.
The Gross Domestic Product measures the monetary value of all the goods and services that are sold by a nation or an economy during a particular period. The GDP is the broadest gauge of the economic health of the nation. Although the GDP has no direct effect on the personal financial plan of a person but it is the indicator of the rise in the employment opportunities and the development of the economy of a particular nation or economy.
The interest is nothing but the cost of lending and borrowing. The extra amount that is earned or the difference between the borrowing rate and lending rate is the risk premium. The interest rates are very important in the financial plan because keeping the fixed deposits will be common in the each and everyone’s financial plan and they would be expecting particular amount in terms of returns but due to variation in the economic conditions there is a variation in the lending and borrowing rates. In the last year we have seen many changes made by the Reserve Bank of India in the interest rates in the REPO (the rate at which the Reserve Bank lends the money to other banks) and Reverse REPO (the rate at which other banks lend money to the Reserve Bank of India) and as a result of that there have been changes in the interest rates of loans, bank accounts, fixed deposits offered by the banks.
See Also: Different Interest Rates
All these above factors have been in the news in the past two years and have been affecting a common man since then. The present recession or economic downturn will go down in the books of history as one of the worst more worse compared to what was seen in the great depression 1930. It is must for each and everyone to have a good financial plan to tackle the recession and a good financial plan can be prepared with the help of a financial planner.
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