These are exceptionally bad times. Every aspect of our personal finances has been adversely affected. But this is also an opportunity for us to rectify the mistakes committed during the previous boom. We took salary hikes, promotions and new job opportunities for granted. We increased our spending and took on debt according to what we thought we would earn next year. And we took returns of over 20% as a given in any investment, be it real estate, mutual funds or stocks.
None of this is true anymore. So, take a deep breath and focus on overhauling your strategy. Those above 35 years, who took exceptional risks and became overexposed to equities, should be ruthless in exiting dud stocks and funds. They should be careful with the children-specific plans they bought as most of them haven't performed well. Instead, a general strategy (which includes equity and debt as per your age and risk aversion) may help you ride this downturn. This is also the time to inculcate financial discipline in teenaged children.
People in the 25-35-year age group should be more careful. During the boom, many became richer than those in the previous generation in lesser time. Today, as they grapple with their first-ever slowdown, they should get back to the basics of personal finance. They need to be aggressive, but not reckless as they had been in the past and may have to postpone a few decisions, like buying property.
The situation is worse for young entrepreneurs. Easy cash and ever-growing opportunities helped them become businessmen while they were in their twenties. Suddenly, they are faced with problems on all fronts. They should learn from start-ups that have managed to find innovative solutions.
What is encouraging is that people are confidently dealing with the crisis. Despite the losses, they are investing in equities, but more intelligently. They are seeking realty bargains without going overboard on debt, and cutting unnecessary expenses. They are not bogged down with fear.
