When stock markets crash and desperate government measures make newspaper headlines, they worry us- but not enough to give sleepless nights. But when the first wave of this financial tsunami hits home and the first 1000 middle class homes lose their jobs, it's serious enough.

And so we ask, 'What's going to happen to me?'

That we are going to be hit hard is clear. But bad times are great times to recreate ourselves in our jobs, our finances and our future. We're going to find ways to stay afloat, because on the other side is defeat. And we don't accept that.

Now, if we take a look at the economic reality, we find-

# Developed economies like the USA and European nations could hit a recession. And what is a recession? It is when there is zero or negative growth.

 # If that happens, emerging economies' growth could slow down considerably and a very real possibility then is that India's growth could go down to 5-6 per cent.

Despite our Finance Minister saying there is little worry, that we will not clock a 7 per cent growth in the next few years, economists and statisticians are ready to take a contrary bet.

The milder outcome of this slowdown one should be prepared for is your increments could be subdued and bonuses could vanish. Many people working in the financial sector are already seeing that happen and this will hit all other sectors as well.

In the last 3-4 years economic growth of 8 per cent meant companies were growing at least 15 per cent plus. So huge career opportunities came up, increments of 20-40 per cent were taken for granted. And you could easily jump a job with a doubling of salary. But that is over now.

So what we need to do today is a REALITY CHECK. Firstly, how much in debt am I? And secondly, are my EMIs linked to future increase in income?

So, where does one begin?

REALITY CHECK 1:Segregating bad debt from good debt. Home loans are good debt; personal, credit card loans are bad debt.

Prepare for tough times:

# Pay off your credit card, personal loans as soon as possible, they carry rates of 18 to 36 per cent a year. To put this in perspective, you get a return of 3.5 per cent on money in your savings deposit, a return of 10-11 per cent on FDs. And you are paying 18-36 per cent on a loan! Sweep out these two accounts and pay off these high cost loans.

# Pay off one home loan in total. If you have two home loans- even if you are in a two income house. The lower the debt in your monthly outflow, the more stable you are in times of trouble.

REALITY CHECK 2:Are my EMIs linked to future increase in income?

Some banks gave teaser rates and EMIs to induce people to take larger home loans than they could afford. The logic is simple, you can afford a higher EMI as your income grows year on year. But increments and salary jumps of 25 per cent or more are going to be history for the next 2 to 3 years.

Prepare for tough times:

# Check your loan document carefully, what sort of a home loan do you have?

# Talk to you bank- the bank too does not want a bad loan on its books, they will be willing to help you understand the sort of loan you have today.

# If you do indeed have such a loan, ask the bank to put you on a simple floater rate, you may need to prepay a lump sum today and incur some processing fee, but a steady EMI is safer than a balloon payment.

Now, not getting increments is one thing. But what's now a very real possibility a complete freeze on hiring coupled layoffs, which means if you lost your job, you may not get another one easily either. Thus comes, again, your reality checks.

REALITY CHECK 1: How secure is my job?

# Are you part of the core function of your organisation?

# Are you contributing in a definable, countable way to your organisation?

# Do you feel you are doing double work of what you are paid

If the answer is yes, your job should be fairly secure. Your replacement cost is going to be very high for the company. If the answer is no, you need to pull harder.

REALITY CHECK 2: Do I have a safety nest?

# Layoffs happen for no fault of our own at times. In such times you need about 3-6 months of liquid funds to tide you over till you get the next job

# Distress job hunting lowers confidence and salary.

# Collect the money in all your bank accounts, FDs and other liquid assets and see if you have this much

# If not, aggressively get this money together and put it where you can access it in about a week to en days.

REALITY CHECK 3: How liquid are my savings?

# Your net worth may be high, but it may all be in real estate, PF and stocks. You need some money that you can use very quickly

# Liquidity is the attribute of an asset that allows it to get converted to cash, without any loss in value and with low transaction cost.

# Money in savings bank accounts, fixed deposits, debt funds, liquid funds are all within a week of use.

Now, though the inflation level may have peaked right now, at 11.5 per cent it is still more than double of the figure last year at this time. And the problem with inflation is that it is like a genie un-bottled, prices don't really come down, it is just that the rate of price rise goes down. So we are looking at overall higher prices in the next year.

A high inflation, combined with an economic slowdown affects you. And therefore,

REALITY CHECK 1:How much am I spending?

# Good time to cut out the discretionary spend to bare minimum. Not saying that you stop eating out, but cut down the frequency and maybe fine dining can get toned down a bit.

# Instead of making a spending budget we have another very smart tip to give: make a saving target and spend the rest. Not only do you pay yourself first, you also have the pleasure of guilt-free spending.