How to survive a recession

Cook your own meals, travel domestically, invest based on goals: Tips on spending, saving and planning from financial gurus.

Pornnalat Prachyakorn

It's been a decade since Thais suffered through the last economic crisis. How much have people learned?

While economists agree that the country today is unlikely to suffer the massive bankruptcies and layoffs seen in 1997, there is no question that times are tough and will only get tougher. But some simple changes in your spending and savings habits can go a long way in making ends meet, according to personal finance experts. We asked three financial gurus for their top tips on how to survive a recession.

Spending

Former fund manager Siriwat sold sandwiches during the 1997 crisis.

It almost goes without saying, but the simple reality is that the less you spend, the more you have. When times are tough, you need to look at every single item in your daily budget and cut, cut, cut.

Siriwat Voravetvuthikul knows. The former fund manager made headlines during the 1997 crisis when he put away his tailored suits and took to the streets to peddle sandwiches along Silom Road.

Every little bit helps, Mr Siriwat said. "Eating out can be a huge expense. It's not just the restaurant bill, but the cost of travelling as well," he said.

"You should try and cook your own meals at home."

Next is to rethink your shopping habits. Most people will automatically cut back on big-ticket items such as a new plasma television, car or computer. But the little things count as well - delaying purchases of new clothes and gadgets can save considerably. Ask yourself: Do you really need the latest and greatest, or can last year's fashions stretch for another season?

"The key to surviving a crisis really depends heavily on each individual," Mr Siriwat said. "But it's important to stop buying the things that aren't really needed."

Reungvit Nandhabiwat, the secretary of the Thai Financial Planners Association, suggests that one look closely at vacation plans when times are tight.

"Travelling in Thailand might be just as interesting as travelling abroad, and certainly it costs less money," he said.

But if your heart is set on going abroad, forgoing a luxury five-star hotel in favour of a simple bed-and-breakfast inn can translate into hundreds or thousands of dollars in savings. Mr Reungvit said transport and accommodation expenses can typically be scaled back without significantly hurting the overall experience.

Reungvit: ‘‘Whether good times or bad, one should always plan for the unforeseen.’’

Of course, transport costs matter not only when you're on vacation. The daily commute in Bangkok's notorious traffic can cost thousands of baht each month in fuel and tolls.

Mr Reungvit said public transport and carpooling are two ways of cutting time and expense. Even simpler is limiting trips to the grocery store to just once a week instead of every other day.

Savings

But cutting back on spending is just one side of the personal balance sheet. If you can also boost your revenues, it can make a difference to your bank account at the end of each month.

Selling off old clothes, books and household appliances in a second-hand market can be a quick way to raise cash.

Mr Siriwat said tapping one's inner entrepreneurial spirit was another option.

"Focus on selling the basics. Everyone needs to eat and drink," he said.

"I'm not talking about setting up a fancy restaurant. And know your limitations. If you can't cook, find someone to do it for you while you do the selling."

Selling insurance, cosmetics or home appliances part-time is another option. Direct-sales companies such as Amway often provide training courses that can prove valuable down the road.

Mr Siriwat said one of the most important things any consumer can do when times are tough is to erase debt.

Interest payments on credit cards or personal loans, while limited under the law to 20-28% per year, still add up quickly. Best to pay off your entire credit card balance each month, or else rely on cash and debit cards to enforce spending discipline.

"The concept of the sufficiency economy is important. It's best not to borrow too much from the banks, or better yet, don't borrow at all," Mr Siriwat said.

Umapan Charoenying, first vice-president and head of consumer financial planning at Kasikornbank, agreed that managing one's debt was key to financial survival.

"Debt shouldn't consume too much of your income," she said, adding that consumers should seek to pay down loans with the highest interest rates first.

Planning

While it's easy to become consumed with day-to-day obligations, Mr Reungvit said it was important to also consider your long-term needs.

The more you invest today, the more you will have tomorrow remains a truism - raiding your retirement account or children's savings fund might raise needed cash today, but could have painful consequences for the future.

Mr Reungvit said asset allocations should be made based on when expenses come due. If your child will go to college next year, low-risk bonds are a smarter choice than stock.

"But if you are saving for retirement in 20 years, then by all means, continue to invest in stock. Don't be concerned about market declines today when you're dealing with a long-term investment," he suggested.

Ms Umapan agreed that one needed to match investment strategies with long-term goals.

"You should have a clear objective in mind with your saving, then you can establish the right plan," she said. "With every paycheque, the first thing you should do is separate what you need for savings and investment. Use the rest for your expenses."

Fixed deposit accounts are suitable for those lacking financial discipline, Ms Umapan said. Many asset managers can also help set up automatic contributions to long-term equity and retirement mutual funds, which in turn can help significantly in cutting one's annual income taxes.

Mr Reungvit advised that whether in good times or bad, one should always be prepared for the unforeseen.

"In a recession, forget about 10% annual raises. You should just try to reduce the risk factors that could make your financial situation worse," he said.

Health insurance, property insurance and life insurance premiums might seem like optional items to many. But when disaster strikes, insurance protection can make all the difference to one's financial security.