What to do in times of financial crises

BY SIMON EJEMBI

What to do in times of financial crises

In times of financial crises, experts say many people lose faith in themselves, thereby making worse a bad situation. In this report, SIMON EJEMBI writes on the steps you can take at such a period

Considering the low level of financial literacy among millions of people and the economic situation in the country, it is not unusual for people to get caught up in financial crisis.

According to experts, financial crisis can affect everyone. They add that sometimes, financial responsibility may not be enough to protect you from crisis, especially during economic recession.

So, when caught in financial crisis, experts say rather than conclude that ‘you are finished’, you need to have faith in yourself, knowing you can deal with it – just as many others have done through the years. They stress that as challenging as financial crisis is, if you approach the situation the right way, not only will you get through it, you will learn a lot which in turn will get you better prepared for the future and its financial challenges.

In dealing with financial crisis, a director in Kakawa Asset Management Limited, Mrs. Modupe Mujota, says self-belief is important.

“Dealing with financial crisis can be challenging, but each investor has to believe that they can overcome the obstacles they face,” she adds. In her view, the following steps are crucial.

Do not panic

It is important to remain as calm as possible otherwise the situation may be made worse. In most cases, when individuals’ panic decisions are poorly made because analysis that may have been objective will be compromised by fear and/or anxiety.

 Appraise assets and liabilities

There is need to appraise all existing assets and liabilities so as to determine the impact of financial crisis on your portfolio and to put things in their proper perspective. Basically, there is need to”take stock” (pardon the pun). Only when this has been done can the true extent of the financial crisis be known and necessary action taken on how to rectify the situation.

 Access information

The individual needs to access as much information as possible (market information, new and/or changing policies, investment situation and so on). Available information may be discussed with individual(s) who possess competence in financial investments in order to have better understanding of not only the present situation but also the short to medium term outlook.

 Create a plan

A detailed and documented Action Plan has to be prepared and followed in order to salvage your portfolio. The individual may seek the assistance of a financial planner/adviser who will be able to assist with crafting a wholistic strategy and executing the daily tactical plan. The individual may be advised to start off by cutting back on daily expenses. Some of the wants that may easily have been indulged in the past may now be classified as luxuries or treats under the present circumstance. For example – regularly eating out, cinema visits, shopping sprees and so on. There should also be some sort of revised savings plan which may be steadily built up to act as a future buffer for the portfolio. If the individual has a loan, then a loan repayment plan should also be included in the Action Plan in a bid to gradually free the person from debt or revise the terms thereof.

 Execute the plan

It is important to note that the steps created in the Action Plan must be adhered to and periodically reviewed. It may be challenging initially but with a strong will to overcome the situation as well as the discipline to execute the plans, the individual is well on the way to once again becoming financially secure.

 Learn the valuable lessons

Booms and bursts will happen, it is only a matter of time and the wise discern the times.

 Mind your greed

Profit made must be earned. Learn when to exit a market. Plan your exit, set your exit triggers and act on them!

Apart from the steps explained above by Mujota, experts also recommend that you protect your credit standing.

To achieve this, you have to strategically pay off debts. As you try to resolve the crisis, they say you will need a lot of help, hence the need for you to make efforts to pay off high interest debt. They say many people make the mistake of trying to pay off low interest debts instead. This, they insist will only worsen their financial woes as debt will multiply via interests.

 Reduce expenses

While many people know that they have to cut down on expenses in times of crisis, they find it hard to do. But experts warn that without reducing expenses, you will find it near-impossible to deal with financial crisis. To cut down expenses they suggest that you:

•Review your budget – If you do not make expenses based on a budget, you will need to start to use one. And if you do, it is advised that you strike out such things as cable subscriptions or go for less expensive packages that offer you the basic channels. If you host parties quite often or eat out a lot, you will have to cut down on both. Experts say as fun as eating out may seem to many people, it is an expensive habit in times of financial crisis.

•Rent out/sublet unused houses/rooms – For people who own more than a house with a second being used as a guest house or those whose houses have BQs that are empty, renting out the second room or BQ, may provide some needed cash. Though many landlords are opposed to the idea of a tenant subletting parts of their houses, some do not mind. Experts say this might be an avenue to raise cash and to cut down on the expenses that you will need to make in maintaining the home all by yourself.

•Review your shopping habits – In times of financial crisis, spontaneous shopping can prove costly. Apart from checking loose spending, experts advise that you avoid very expensive retail items. Rather, they say you should consider shopping at smaller stores that offer similar items for less. They say you can also take advantage of online platforms which offer similar items at a discount.

Source: Punchng.com