Though in India we might not see a full blown recession in the near future but there is a possibility that growth in the Indian Economy might be sluggish due to Global Macro Economic conditions especially due to economic crisis in the US and Europe. In these times it would be prudent for you to realign your finances so that you are least affected by these events which are not under your control.

To cushion the effect of a sluggish economy, here are a few things you can do (or advise your friends and family members to do):

• Take on a Side Business: Probably one of the best things you can do in a recession is maybe taking on a side job or business. A side business brings in some extra cash which you can add to your savings, or can help you supplement your income if you lose your main job, making your savings last longer.

• Increase Your Savings in Cash: In recession cash is the king. For your personal finance, this means making sure you have enough money set aside for an emergency fund. A good rule of thumb for deciding the size of emergency fund is that it should cover your expenses for as long as you think it will take you to find another job or source of income. We often hear advisors advocating you to keep three to six months of expenses as emergency fund, but if you are in an industry where jobs are scarce and would become scarcer in a recession, you may want to save more to prepare yourself for a longer job search.

• Check Your Investment Portfolio: When the economy is expanding, mostly stock value rises quickly and if you are not rebalancing your portfolio may become overweight on Equities. On the first sign of economic slowdown, it may be a good time to rebalance your portfolio to your long term asset allocation. For example, for a particular goal of yours you decided that 60% money should be invested in stock and remaining 40% in Debt. A stock may have given you good returns making your stock to debt ratio 80:20; this is a good time to bring it back to the original 60:40. This is necessary in uncertain times as the volatility in the stock markets increases and with a rebalanced portfolio you would be facing the price swings on portfolio allocations which are more in line with your original asset allocation.

• Decrease Debt: The last thing you want in a recession is to serve a lot of high interest credit card debt. Now is the good time to pay off your credit card dues and look for ways to lower the EMI’s you have committed. If is not possible to pay off the debt it is certainly not advisable to add to you debt obligations. That means that you must wait before buying that new car or house.

• Defer Large Purchases: Unless you feel 100% secure in your finances it is best to wait on large purchases like cars or houses when the economy is shaky. Adding monthly payment or depleting your cash reserves is something you would never want to do in times of uncertainty.

• Sort your Needs from Your Wants: Chances are in a recession you won’t get much warning if you lose your job, so it is best to have a plan in place before hand. One of the best steps to take is to set up a ‘what if’ budget that separates your needs from your wants. This would help you identify areas where you can reduce expenses immediately if your regular source of income dries up.

• Start Paying in Cash: Studies have show people spend less when paying in cash, rather than using credit or debit cards. If this works for you, it would be a great way to save more without feeling the pinch. However, do maintain a record of your daily spending.

And Last but not the least stay positive – growth may be sluggish now but will sky rocket again in the future. If you build your resilience and handle your finances smartly, you will thank yourself.