Being in a financial crisis is not easy and one should take steps to avoid it. We have given some guidelines here to avoid a financial crisis –
Have a Financial Plan, Assess your finances and review plan regularly, Live within your Means, Maintain a contingency fund, Make Smart Investments, Pay off Debts
Have a financial Plan – We have said many times but at the risk of repeating ourselves, we would say have a financial plan in place with assets, liabilities, income and expenses recorded. Ensure that you have insurance for yourself and your family. The plan should be made with considerations to life after retirement, emergencies etc.
Do not use credit cards as far as possible and if you do use, ensure you are not late in payment of bills as this could result in penalties.
Maintain a Contingency Fund – Emergencies and contingencies take a toll on your finances. So you should maintain a contingency fund which takes care of about 6 months of your expenses. This money need not be idle cash. It can be in a liquid fund so that it earns some money and at the same time, redemption is quick in case of unforeseen circumstances.
Make Smart Investments – It is important to make investments judiciously. Invest in assets that are solid and secure and will give good returns. You should invest in different types of assets so that all your money is not locked in one or two assets and there is reduced risk of investment losses.
Pay off Debts – You might have EMIs to be paid on personal loans, credit cards, the car, house etc. Rework on the EMI plan and see if it makes sense to pay off some debts especially when you get some windfall. Reducing your debt levels will help in warding off financial crisis.