Money Expert - Diana Clement - Financial Planning, Career, Investing, Economy, Property - MSN NZ

Ten dumb things to do in a recession

7/11/2008 2:21:00 PM, Diana Clement Prev Next

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:

Are you worried about recession? Have your say below.

1. Wallow in the sales. Shops are struggling and they'll be offering increasingly tasty sales. Just because something's cheap, it's not 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. Go 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 paralyses otherwise normal people and more often than not, the thing you fear can become a self-fulfilling prophecy.

Have your say: are you worried about recession?

User comments

i do agree! with it all! YOU SHOULD ONLY SPEND ON THE THINGS AT SALES THAT WILL HELP YOU GET BY WHILE IN THE HARDTIMES, BUY THINGS LIKE CAMPING GEAR AND STOCK UP ON LONG LIFE ITEMS, LARGER CLOTHS FOR THE KIDS AND EXTRA FOOT WEAR, ITEMS THAT DONT REQUIRE POWER, WOOL FOR KNITTING, FABRIC FOR SEWING, SEEDS FOR THE GARDEN, BOTTLES AND JARS FOR FRUIT AND VEGE, PERSONAL ITEMS, put you money in two or 3 banks,

Disagree with 1 2 and 7. 1st the only way to spur on the economy is to spend. If people stop spending the whole economy dies. People just need to save some (which they should have been doing anyway) and don't waste money. The second one, the banks, no NZ Govt will allow a major bank to go under. They should not be considered a risky investment because they're too big too fail. If one of the major ones went under either the NZ or Australian government would have to bail them out in order to keep confidence in the financial sector, which is vital. Thirdly, I don't know what literature you've been reading but until now it would have been great keeping money in low risk funds. It will be time to start transferring to higher risk options soon as the market picks up and you can pick up units cheap. But those is cash funds are the only ones, apart from funds which dramatically changed their structure towards cash, to actually have maintained their value

I strongly disagree with the 1st point. You should be catious of investments and putting all your eggs in one basket but don't hoard all your money. Spend your money as you usually would as a consumer (taking advantage of sales) just don't over spend. The largest contributing factor to a recession is people not spending and putting thier money into the economy. When everyone starts yelling "RECESSION" it creates a recession because people stop spending out of fear and businesses go under, in turn creating job losses, and finally even less money circulating. When you crowd a wholoe lot of sick people together you create a plague. Just because someone cries wolf doesn't mean we should all run around in panic

I am not so worried about the recession as such what I am worried about is what may happen if people especially employers start to panic and people end up losing jobs unnecessarily.

kiwiflyer you are rather narrow minded and i take it a bit of a bludger oh yeah try and blame the national party for your problems. you sound like a winner to me NOT

I agree with point 8 with respect to increasing ones mortgage for consumables, however there is nothing wrong with doing this for acquisition of assets, namely investment properties because a) during a recession one is likely to pick up some real bargains and b) in such times interest rates are often favourable. With that in mind one has to exercise caution in doing the sums, ensuring to factor in generous periods of non-occupancy and possible rent reductions. The other factor that has to be borne in mind is such an investment needs to be long term to fully appreciate the benefits therefore you have to be fully comfortable with the debt servicing and other expenses associated with the property given that there is no guarantee of job security in the interim. I like the concept of point 7 although one should only risk waht they can afford.

I disagree with number 7. People should be keeping Kiwisaver money in conservative investments as this isn't the right time to be investing in shares or higher risk investments. Most non-conservative funds have taken a big hit as they have a high portion invested in property. Number 2 is a bit of a joke as well, as most institutions invest in the same things. For the AVERAGE investor it doesn't mattter if you have all your money in one place - provided they are covered by the government gaurantee.

I disagree with Karx. The more we talk about it and it's implications, we are alerting and educating someone's mind to this global problem. If we make people aware and recommend some safeguards we are being positive. We can still our lives but we have a better understanding of what not to do. I speak to my family about it making sure they know how this word affected my parents and grandparents. Any future financial issues are dealt with first at home!

Why is it the Labour lags always have to get off by slagging another political party, when this is a global problem. Re Survivor - remember who has been in power for the last 9 years & had the power to change things for you. This government has been in less than 100 days. Whatever happened to giving someone a fair go?

With the Nats back in, we have had to say good-bye to the $1040 per year payout from kiwi saver, and we only get 2% maximum from the employer. With the share market trending downwards, it's time for a holiday. Don't pull out, because you will only get your portion back. Put it on hold for three years, and save it for the next Labour Govt. Hopefully Key and his bunch of old lags won't stuff up much more, and we can look forward to a bright future from November 2011.

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