Talk of a recession is growing, so it’s a good time to get your finances in order and a plan in place.
Thursday’s figures showing a quarterly fall in gross domestic product mean the country would technically be in recession if they were followed by another consecutive fall in GDP.
The best way to understand the situation is not worry too much about the technicalities and instead think about it as an economic slump, says financial adviser Martin Hawes.
“We may not have a recession, but I think that what is coming up ahead is going to feel a bit like a recession. It will have the same threats and opportunities that recessions always do.”
Here are six tips to survive whatever it is we are going through.
Do a stocktake
Tom Hartmann from Te Ara Ahunga Ora Retirement Commission said in times of downturn, after Covid for example, demand for resources on the commission’s financial capability website Sorted.org.nz really went up.
Faced with a change to the status quo, people start to question what they really want to happen with their money.
“We get much more efficient, and we get much more intentional about our finances, making sure that whatever surplus money we might have in our budget is flowing to what we feel is most important, as opposed to all the marketers in town who are going for a share of your wallet,” he said.
“Success is really not about how much money you make but how much you keep.”
Start saving today
If you don’t have an emergency fund, do something about that today. Apart from anything else, people’s sense of wellbeing increases if they have at least $1000 set aside to cover unforeseen costs.
The rising cost of living is hitting Kiwis in the pocket, shrinking the pool of discretionary spending we may have had. Some people didn’t have any discretionary spend in the first place, of course.
Don’t let that $1000 number put you off – even $5 a week is better than nothing, and if you keep building it regularly then you end up with something useful.
Look at your KiwiSaver
Then turn your attention to your KiwiSaver – and if you don’t have one, now’s the time to sign up.
If you’re just starting out, make sure your fund is set to the right level of risk, which you can determine by thinking about when you’re likely to need to use your investment. If you’re in your 20s, your potential investment horizon is longer than someone in their 60s.
“You really have to have it set it up right so you have the confidence that you can just keep investing through a downturn,” Hartmann said.
Once you have a plan, stick to it. If you’re taking on too much risk, the danger is you bail out when it gets difficult.
“That’s the equivalent financially of trying to get off a roller-coaster halfway through.”
As long as the settings are correct, try not to worry about what is going on in there.
Keep calm and stay the course, and if you’ve followed the tips above then you should have a pretty good idea of where you’re headed.
Once you’ve made your investment decisions, keep your risk setting, said Hawes.
“The thing I keep in mind is buy in gloom and sell in boom, but most people do exactly the opposite. You do not want to be one of the people rattled out of the market by this kind of volatility.”
People panic when they’re not in the proper risk level for them, said Hartmann. Keep in mind that recessions tend to be relatively short-lived.
“We don’t want to make fear-based decisions, we want to make decisions that are based on wellbeing. So what are the choices we can make today that will really drive up our wellbeing in the future?”
Keep the money coming in
The people who get affected worst by recessions are those who lose their income, Hawes said.
“That can be a downward spiral for a lot of people. It can be a long time before they get their income back again if they lose their job.”
Explore all options. If you lose your job, it might not feel like the time to do something new, but actually it might be exactly the right moment. Instead of becoming a jobseeker, turn that around, and establish some kind of micro business offering the service that you might have been offering as an employee.
Keep your togs on
Not only do you need to survive, you should be looking to try to advance yourself, and even looking to make it through the next dip beyond this one, Hawes said.
As US investment guru Warren Buffett said, it’s only when the tide goes out we find out who’s been swimming naked.
When things are going well, it’s easy to ignore the bad habits and problems lurking beneath the surface, but when the money’s receding, we’re exposed – high and bad debt; a lack of savings; not keeping up with professional development and qualifications.
Don’t be the one without your swimming togs.