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2020, Is ‘Recession’ the Economic Doomsday?

Coronavirus plunges eurozone economy into historic recession

France sinks deeper into recession, with 14% GDP hit in 2Q

The U.S. is officially in a recession. Will it actually become a depression?

With these news making into the front, its time we look at What is Recession?, a Depression?, and what can we do about it?

Welcome to riteFinance, this is your host Ritesh and today we are gonna unveil this curtain of fear!

A Recession is a slowdown in economic activities for at least two quarters. Since the economy is in contraction during a recession, so a GDP, Corporate profits and Employments go down.

So what causes a Recession? A fall in consumer confidence and spending referred to as a demand shock, causes a Recession. And what causes a fall in Spending?, well there are multiple factors like the 2008 financial crisis was caused by the Real Estate Bubble Burst causing a Recession, and the current one is caused partially by Lockdowns imposed by economies to prevent the spread of COVID.

Economies all the time goes through a Boom and a Bust cycle, a high rate of growth followed by slowness. These Bust periods are what is referred to as Recession and it can have one or other factor. Recessions are caused usually by irrational exuberance and soar in asset prices during the economic boom when people become so irrational that they think Economy will never reset again. Now, it doesn’t mean Recessions are good, Credit become difficult, Investors lose money, consumer cut spending, a company cut job etc. And if left uncontrolled a Recession can lead to a Depression.

The Economy

A Depression is a severe economic downturn which lasts for years (not months or quarters), and its effect can last up to a decade! Currency devaluation, price deflation and Bank failures can occur during a depression.

While since 1984, world economy is hit by 33 Recessions, the depression we know of is only ‘The Great Depression’ of 1929, which lasted for around 3 years.

Is 2020 Recession the result of Covid?

Well to say so, will only be partially correct. Covid acted like a needle in already inflated bubble. Recessions are not caused by a single event. Rise in corporate debt, economic slow down of 2019, China-US trade war and Brexit were some factors that led to the build up resulting in the current recession.  

With two quarters down, it is sure we are in a Recession. Question remains however In 2020, Are we heading for a Depression?

To answer, we don’t know, no one knows for sure! But no indicator is currently pointing towards a Depression, Economic revival is the priority of many states, focus on innovation and vaccine to reduce if not eliminate COVID is under way. That said, it is likely we will see more costly adjustments, certain setbacks along the way, but a economic revival even though slow will be underway soon in 2021. Will it be a V shape recovery (a steep decline and quick revival)? I think definitely not, it doesn’t look so, but a longer U shape recovery is likely, the Great recession of 2008 which lasted for around 19 months saw a U shape recovery.

Current State of our Economy
State of the Economy

With all this Negativity around, is there a light at the end of the tunnel?

The short answer is Yes!, At least for some.

  • Some Business thrive – Grocery stores, Bankruptcy attorneys, Bars, Maintenance services are usually the one that survive a recession. Definitely this depends on the kind of recession for example Bars which usually thrive in recession as the Binge drinking increases will likely be not in a good shape during Covid given the current health emergency and the government guidelines, also another example can be of Online Retail Marketplace like Amazon that are likely to thrive in current crisis, in-fact Amazon has added more jobs, additional 1,75,000 employees during this crisis .
  • Efficiency Increases – Inefficient Businesses and the one with on-going difficulties are the first to go Bankrupt during a recession. While a Business that can streamline itself, find alternatives and reduce its costs survives easily.  

On an Individual or Consumer level –

  • Change in Mindset – Recession forces you to reflect back on your expenses, cut some unwanted expenditures, look for alternatives, streamline personal finances, and set up an emergency fund, making you more efficient.
  • Crisis as an Opportunity – Every crisis comes with an Opportunity, that is why it is believed more Millionaires are made in crisis than any other time. While it is a harsh reality Recession can create more income inequality due Govt. policies, printing of more money, and can result in inflation, Nevertheless it gives you as an investor to buy some big firms (I mean a piece of them – stocks) in big discounts. Only if you think like a Minority and do your due diligence as an Investor.  We have a few resources to get you started and more coming up soon (watch out for this space).

Link to Resources for the Minority

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

– Warren Buffett (Legendary Investor)

News UpdateGDP Decline in Second Quarter : Spain 18.2%, France 14%, Germany 10%, United States 32.9% (worst economic contraction)

Keep Learning, Keep Investing! Thank you Readers.

Hustle on the Side

Lost Job, Shit happened, now what?

No worries. Well yes you can’t buy Lamborghini or your favorite scarf at Gucci but definitely you can eat some Luchi (Indian Bread eaten with Chickpeas). Jokes apart, well lets discuss how to keep your cash flowing to get that necessary food on your plate! Below are five side hustles that you can do to keep some extra cash flowing that can act as an add-on to your Primary Income source or can be a savior in case you have been a victim of the Crisis like Covid. These Side hustles can earn you anywhere from $500 to $2000 a month with little effort. So without further adieu let’s dive in.

1. Online Store Dropship that scarf, or retail that shirt; whatever you choose selling items online can be a good source of Income. And with this pandemic pushing more & more people online with contact-less door to door delivery, your store can be the next big thing. So get your domain and hit that Shopify to keep the customers rolling. Now, if you are wondering you can’t get your supplies from China and hence can’t make that extra buck dropshipping, don’t be dishearten check out ever green platforms like Amazon and use it to your advantage. To read more about how to sell online click here.

2. Freelancing Web designing, writing, photography, digital marketing, online tutor you name it, anything that can be done digitally can be done through freelancing. For starters you can check out platforms like ‘Fiver‘ or ‘Upwork‘ and once you have a belt of projects completed under you, you may like to showcase the same through a personal website. If you serve your client well you may very well turn your hobby into a full blown Business. All you need to start freelancing is to master a skill, and that is where you can

3. Blogging or Vlogging, Social Media – Be a Influencer, teach something, or just crack jokes, Social Media is platform for all, provided you are ready to put in the required effort. To put the numbers in perspective those with 100,000 followers can earn around $700 per photo in Instagram. And in Youtube with 20,000 views you can earn around $100. Affiliate Marketing, Sponsors, Ads, and selling products are some ways to earn through Social Media. But remember you personal brand won’t be build overnight you will need to understand the system and leverage it to your advantage. To know more on how you can crush it on Social Media platform, there is a great book ‘Crush It’ by Gary Vaynerchuk (a Belarusian-American entrepreneur, New York Times bestselling author, speaker, and Internet personality)

Garyvee says

4. Dividends – If you invest in right stocks, you can have the regular payments added to your account quarterly/annually. There are companies that pay a part of their profit at regular intervals back to the Investors, for owning their stock. All you need to do is open a account with brokerage like Zerodha and do your due diligence picking up the stocks. You can start with as little as 100 rupees.

5. Real estate A vacant land, or a building is referred to as Real Estate. Real estate investing is the purchase, ownership, management, rental or sale of real estate for profit. A way to start this is get a duplex, and rent either one or both the portions, using rent to pay off the mortgage payment.The loans also provide income tax benefits under Section 80C (up to Rs. 1.5 Lakh on the principal) and Section 24(b) (up to Rs. 2 Lakh on the interest paid).

Bonus content – ‘Flipping’ – you can flip anywhere from a book to a watch, you can even do something called ‘Domain Flipping’. A Canadian blogger Kyle MacDonald has even flipped red paper clip for a house, doing a series of 14 trades online. You can also use eBay or Amazon to flip. Refer this link here to know more on how to flip items on eBay. Flipping items is all about art of selling, master it and you will never sleep hungry anytime.

Don’t forget Successful businesses can also start out as side hustles.

Thank you for reading 🙂

Invest your Money

Money affects every aspect of our Life. But oftentimes we forget that it is just a tool. A tool to help us live better, not the sole purpose of life. It is not the only thing that should matter, but yes its a major thing in Life.

If you are broke, no one will shelter you. If you are broke, sure your life becomes a hell. That is why we need to understand how to not let Money destroy our Happiness, how to not let Money stress us, how to not let us be consumed and work tirelessly for Money without caring about health or stuff that matters,“how to be financially free”!

One Important aspect to Financial Freedom is INVESTING. ‘To Let Money grow Money’. But before you Invest, you need to know

5 To Dos of INVESTING

1. Only INVEST in things you understand. Not just listen to any random advice, Do your own due diligence before Investing. Because Investing comes with risk and you are never guaranteed to make Money, you may lose all.

2. INVEST for the Long term. By Investing for long term you can stay away from seasonal risk and short term market fluctuations, hence reducing the risk and letting your capital grow over the time. This is the way to reap all the benefits of Compounding.

3. Diversify your Investments. Like the saying goes don’t put all your eggs in one basket. The same is true for Investment, one should not put all their Money on a single asset.

4. Only INVEST the Money you don’t need for the next 1 to 3 years at-least. Well apart from Investing you need to make sure you have a saving cushion, and some cash to be used in case of emergency.

5. INVEST on Self. Now this is the thing many of us forget, well its equally important if not more to Invest back on self i.e. education, learning, personal grooming, health etc in order to reap all the benefits and even further grow your Investments.

That’s all for now ‘Happy Investing‘. For more such Personal Finance related tips and knowledge do follow riteFinance, ‘because Money Matters’.