By Diana Clement
The big bad “R” word makes people do strange things. Buck the trend and don’t be dumb with your money now. No-one, I repeat no-one, is bulletproof in a recession. People lose money and people lose their jobs. Here’s what you shouldn’t be doing:
1. Wallow in the sales. Shops are struggling and they’ll be offering increasingly tasty sales. Just because something’s cheap doesn’t mean it’s a good idea to buy it. This is the time when you should be building up a three-month emergency fund if you don’t have one already.
2. Trusting one company to look after your money. Never under any circumstances should you have all your money in one bank or other financial institution. That is, of course, if you have any money. We do have a deposit insurance scheme now in New Zealand, but imagine what would happen to you if all your money was frozen for a few months — as has happened to many investors with money in funds.
3. Sell your shares. Thinking of selling all your shares and properties and putting the money in the bank? Why oh why do people do this? It just makes me want to hit my head against a brick wall. The time to sell is the top of the market. At the bottom you’ve got little to lose and a lot to gain as the market starts to rise again. If there’s rising inflation as well, any money put in the bank now will erode in value.
4. Quit your job. Recessions aren’t the time to have a hissy fit and walk out of your job. That can be a mighty expensive move and if you’re not careful you could be without an income for some time to come. Job moves should be planned like a military operation, not done on a whim.
5. Take your job for granted. We’ve all seen those employees that think they’re God’s gift to a business, when in fact they’re just creating a blockage. Guess who’s first to go when times get tough?
6. Buy goods on hire purchase (HP) or other credit. Buying goods on expensive credit is dumb at any time. It’s especially bad in a recession. What if you lose your job? The debt you’ve got will be far greater than the value of the goods. So even if you lose them, you’ll still owe money.
7. Keeping Kiwisaver money in conservative investments. Unless you’re knocking 60 then your long-term savings shouldn’t be invested too conservatively. That’s because they’ll grow slower and you’ll have less to retire on. Shares are arguably cheap at the moment, so taking an aggressive approach with your Kiwisaver fund could see it grow rapidly.
8. Borrowing against your mortgage. Over the past five years, too many Kiwis have extended their home loans to buy cars, kitchens, overseas holidays and consumer goods. That’s sort of okay (although it makes them more expensive) when the market’s rising. But if the value of your property is going down, you could soon get into a poor financial position. You should be increasing your savings in a downturn, not vice versa.
9. Be a guarantor on someone else’s loan. This is a bad thing to do at any time. But what would happen if your friend or family lost his or her job and you had to cough up for the loan? Ouch.
10. Succumb to fear. Fear paralyzes otherwise normal people and more often than not, the thing you fear can become a self-fulfilling prophecy.