Today, there are strong hints that another global financial meltdown is on the cards. Stock markets across the world are dipping and there are fears of another phase of economic turmoil.
In a highly-interconnected world, a problem in one part swiftly impacts other markets, however remote the geographies are. Many people are seriously considering various ways of empowering themselves to take care of their personal finances. Smart money management and mindful spending/saving habits are the order of the day.
Financial crises build up over a period of time and are often cyclical in nature. They seem to appear like a bolt from the blue, but experts can predict them with a great degree of accuracy and spot the signs and symptoms early on. Unfortunately, most of us don’t have the time or the expertise to give the swift, smart and effective response because we always seem unprepared. Restoring your financial health can take a long time and lead to a ripple effect in other aspects of life – health, social and personal relationships, economic status etc.
Personal Financial Crisis
A major negative event or catastrophe can send your personal finances into a tail-spin. Disasters which can cause a crisis include:
- life-threatening illnesses
- crime and assault
- bad investments
- medical emergency
and more. These devastating situations create not just financial problems, they can also disrupt your self-esteem, emotional well-being, cause loss of confidence, depression, confusion, etc. Negative reactions are a component of any crisis. Self-blame, guilt, feeling of failure and inadequacy, loss of control, phobias and fears, anger, aggression, desire for revenge are some of the common negative emotions that well up in the wake of a financial crisis. Real fears of having to lose wealth, possessions, social status, relationships etc also abound.
It may not have been possible to predict or control the crisis under normal circumstances, unless you’re a qualified financial expert. It’s also normal to gamble or take chances, hoping to clear a big win.
However, surviving, recovering from the crisis, learning from it and insulating yourself as much as possible so that you don’t go through the same thing next time round are within your control.
Taking back the control can be a long and challenging process, but in the end it will certainly protect you against the next onslaught.
- Evaluate your habits: When your financial situation changes, make the corresponding changes in your life. Cut back on eating out, impulse buys, look for discounts, ditch the credit/debit cards, club memberships, call off holiday plans.
- Budgeting: Tried and tested old methods like cash-envelopes for different expenses at the beginning of the month, knowing where your big-ticket spends are, prioritizing and defining where every dollar goes is crucial for survival. This gives you a clear picture of your finances and helps you to streamline them.
- Spend smart: Small changes like shopping at discount-stores, local markets, shopping with a list, using coupons judiciously can help you avoid over-spending.
- Don’t pile up debts: Pay bills on time, avoid late-fees/penalties, cut back early enough, focus on paying for essentials. Get out of debts, however small they are. Never leverage debts to gain gear or supplies.
- Create an emergency fund: However difficult it seems, put aside some money every month for emergencies. Don’t touch this cash unless it’s unavoidable. Expect the unexpected – This is useful if there’s a serious financial catastrophe, ATMs don’t work, stores stop accepting cards etc.
- Find ways to make money: Do home-based work, monetize your hobbies, have garage sales, etc. Financial crises can arise out of long-term unemployment or losing a job. File immediately for benefits, take advantage of local food schemes etc.
- Debtors and Possession Agencies: It’s wiser to opt for voluntary repossession as much as possible, to avoid negative penalties. Speak to a credit-counselor in case you have problems with credit-card agencies.
- Invest in education, re-skilling, training: These will safeguard you from going under when the next crisis happens.
There are no guarantees as far as financial security is concerned. Become more independent and self-sufficient and look a little more ahead than what’s immediately visible. Small sacrifices now can help create a bomb-shelter to protect you against future financial crisis. Your entire wealth can be wiped out in a matter of moments. But a certain amount of prudence, caution and vigilance can certainly insulate you against devastating consequences. Get a buy-in from your family and friends and face a crisis with confidence and preparedness.