“The current financial crisis is an event that occurs once in a century” – Alan Greenspan, Former head of US Reserve System.
From the last 6 months we all are hearing and reading too much about the world financial crisis. The panic is everywhere, from New York to London, Paris to Frankfurt, Tokyo to Seoul, Sydney to Toronto and even from India to China. Here I am neither deluging comments or doing analysis around the ground reasons for this crisis nor I am suggesting remedies for this century event, but I am trying to conglomerate few points which as a middle class Indian we should know, understand and try to follow.
I was recently reading about the consternation among people of different nations of being jobless and loosing livelihood. In the current year so far, in US 1.2mn people have lost their jobs. The so-far-considered stable (comparatively) economics like India and China are now also started entering into this realm. Everyday firms are showing out-way to their employees. Millions of people are on the verge of loosing their jobs. Now the big question is: As a middle class Indian, what should I do in this time especially when I am an employee of a private firm? So here are few tips we all can follow:
1. Stop taking loans: If you are planning to take new loans for house, car etc, stop for a while. Recently I saw someone did a good calculation on housing loans. As per this calculation, if you take home loan of 25L with an interest rate of around 14%, you will end up paying around 8 million (80L) rupees in 20 years. Now the question is, will that house worth 80L after 20 years. Forget about the rates, with the quality of material that builders are using these days, even sustainability of these houses in 20 years is itself a question. And even if they sustain, no one will give you 80L for a 20 year old house. Now against this, just imagine that you save just 10K per month of this EMI (after deducting rent etc) and invest this in the most safe and risk free instrument like PPF with minimum 8.5% interest rate. This way, at the end of 20 years you will get around 65L accumulated. Now don’t you think that this amount will be sufficient to buy a new house which cost 25L 20 years back? And along with this you took a new house which will provide you shelter for your retired life.
2. Rethink about purchasing luxurious items: If you are planning to buy luxurious items like car etc, that too on loan, don’t do that. Incase of houses, you can even assume that the net worth of your asset is increasing, but incase of luxurious items, its surely depreciating over time. And above this you are paying higher interest rates. It’s good to dream, but have worth before going for it. At least keep 60-70% fund in your pocket before even thinking for luxurious items. And be intellectual in choosing the items. If you think a small car is good enough for your family, don’t think beyond that and compare with high end cars.
3. Be Insured: Insurance is one of the best ways to keep yourself financially relaxed. Just image this fact that although being in job, you are feeling the panic of the current financial crisis, image the situation when your family needs to face the same situation again without you being there. So analyze the need of your family and plan your insurance scheme accordingly. Even in this case prefer to be insured under government supported and shared agencies firm like LIC etc.
4. Be financially smart: One of the lessons I learnt from this crisis is to always being smart from finance perspective. Scholastic smartness alone doesn’t work in this era. Have a mixed portfolio of risk and risk-free investments. Take positive and pondered decisions. Play forward but also keep one leg ready to go defensive.
5. Be more effective and efficient: Swami Dayanand once said ‘Work is Worship’. And believe me, those who follow this never feel the fear of being jobless. So, the best way you can save your job is to make other assured that you are the key resource for the organization. This is always helpful even in normal scenarios. Be more concentrative on you job and follow the rule of ‘work is worship’.
6. Along with this you can also follow some minor but very effective tips:
- Spend good time with your family. A trip to Switzerland is not the only way to keep your family happy but even a short trip to nearby hill station may make a difference.
- Be simple but think high.
- Improve you technical, soft and interpersonal skills. Those will be the helper in these situations.
- Always keep liquidity with you. This will give you well needed self confidence in those times.
