Alan Greenspan said that the current financial credit crunch in the USA is a "once in a a half century, probably once in a century type of event — the worst by far" in his lifetime. In my opinion, due to the greed of men (through corporate organization's goals of profit maximizing and done in the interest of demanding shareholders), large wealth was created and often through high leverage (or excessive borrowing through issuing of debts globally!). So these causes a domino effect of many banks around the world losing their money when many large corporations fail due to the sharp drop of property prices. It may however be less dramatic than the
Great Depression in 1929 that lasted 10 years. The wealth of the world today is more diversified along different asset classes. Many among the wealthy have portfolios of gold should the world's currencies and properties decline, thus preserving their wealth. There is also more mobility to greener pastures should a terrible drought hit USA again such as during the Great Depression. Central banks have large reserves and better diplomacy than half a century ago, as they can now depend on other countries to issue emergency financing should a disastrous financial crisis threaten the rest of the world to sink in a Great Depression. But nevertheless, there are several steps to prepare for a recession before its too late. Especially when one is a daddy and have huge family commitments. Of course, financial decisions are personal choices but I found some articles that could be relevant to most people at
here and
here.
Just as I shared principles of
R.I.C.H., here is another acronym I coined up myself. To survive a recession is the best time for S.A.V.E. (Spendless, Accumulate, Vocation, Emergency fund). A recession is certainly a time to
control spending through effective budgeting. This
site has many ideas but it boils down to sitting down, evaluating your spending habits and making decisions to save on the unnecessary until the storm has cleared and the rainbow is in sight. For instance, I do make it a point to only go out for dinners on special occasions as its much cheaper at restaurants during lunch time, but I am recently contemplating packing lunch from home once a week. It just feels uncomfortable making that change in habit and I will blog more about this resolution.
Accumulating assets only during recessions is certainly another good financial wisdom that require lots of patience. If one has saved a lifetime to buy low, recessions are the time when you can negotiate a good deal, and often times, you make the best decisions as you are not following the herd, but taking a contrarian stand, exercising extra caution. But, another area requiring caution is the workplace or business (if you are self employed). Recession is certainly a time to be
working hard to maintain one's position to ensure constant income flow. For me, I took one step further to saying yes for extra projects outside work. Currently, I am actively engaged with free lance research for companies entering the Japanese market and these projects provide an additional USD$1500-8000 per project. Of course, the need to sacrifice weekends and rest. Other opportunities exist in teaching, blogging or other means of introducing services to others. Besides extra jobs is the need to be
linked with the right recruiters. Finally, this
site shares the need to grow your
emergency fund that can last you for 1 year without job and with rising prices. With this in mind, I have recently separated my fixed term deposits into various terms maturing at different dates so I have the option of cashing some of them quickly. I got into a few new fixed term
AUD deposits at attractive exchange rates when AUD$ sank to 83/yen, though these are somewhat illiquid with current market volatility and hence the need to exercise more caution. Above all, recessions are best times to take stock of your life, be thankful to God, seek ways to offer help to others and seek clearer directions as the busyness subsides. The earth needs to rest after all the massive overdevelopment and so do we.
What do you think of the above principles? Any other tips to weather the storm? Whats your outlook and would it be the meltdown of the century?