In case you have watched the TVF record-making series ‘Sapne vs Everyone,’ you must remember episode 3, where co-protagonist Prashant finds himself grappling with a severe financial crisis.
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Prashant is a responsible man and has a family to look after, including the care of his mother, who is battling cancer.
He also has an ambition to become the world’s greatest actor, a dream that feels increasingly out of reach. On top of this, his boss treats employees like expendable machinery rather than people.
And at such a fragile point in his life, Prashant receives a huge setback which almost strips away the land beneath his feet — he loses his job.
What shall Prashant do now? How shall he manage his finances?
Scenarios like this are all too common in India, where the youth can suddenly find themselves unemployed. But this is just one example of a financial crisis. There are hundreds of ways a financial crisis can hit you. The harsh reality is that no one is immune to such uncertainties.
What would you do if you found yourself amidst such circumstances tomorrow? How would you cope?
Could you still match your expenses and support your family?
Life has its own way of throwing catastrophes on us. This is what makes having a financial plan for yourself very important.
Without proactive financial planning, you leave yourself and your family vulnerable when the unexpected strikes. A sharp crisis can rapidly spiral into a desperate situation if you lack financial resilience.
Financial planning won’t prevent crises, but it enables you to navigate them without losing everything or accruing burdensome debt. A plan gives you a compass and a life jacket. Rather than flailing, you can make strategic adjustments while clinging to your life raft of emergency reserves and lifelines. Proper planning prevents you from completely sinking while you ride out rough waves and get back on course.
Here’s What to Do Amidst Financial Turbulence
Determine your assets
Starting to tackle a financial challenge means first understanding what you have. Start with your belongings – these are things you own that add up to your financial health. This includes the equity in your home, any money in bank accounts, the value of your car, and any investments or retirement savings.
Don’t forget other items that might be worth something, like jewellery or collectibles. It might be a good idea to get these appraised or look up their value online. This way, if you need to sell anything, you’ll have a clear idea of what it’s worth.
On a piece of paper, make a list of these items and what they’re worth. Add it all up at the end to see the total value of what you own.
Determine your liabilities
Liabilities are essentially your debts or what you need to pay back, acting as the flip side to what you own. This includes money you owe on credit cards, any lines of credit, your home mortgage, bills that haven’t been paid yet, student loans, and car loans.
On the same piece of paper where you listed your assets, add a new column for your liabilities. Write down each debt along with its amount. At the end of this list, tally up these amounts to find out the total of what you owe.
Once you’ve listed both your assets and liabilities, you’ve effectively created a personal balance sheet. This document provides a snapshot of your financial health by showing the value of what you own versus what you owe. Here’s what happens next:
Clarity on Financial Position: You gain a clear, comprehensive view of your financial situation. This clarity is crucial for making informed decisions, especially during financial challenges.
Net Worth Calculation: By subtracting your total liabilities from your total assets, you can calculate your net worth. This figure is pivotal for assessing your financial stability and planning future financial moves.
Identify Opportunities to Improve: With your assets and liabilities laid out, you can easily spot areas for improvement, such as high-interest debts that need prioritising or underutilised assets.
Strategic Financial Planning: Knowing your financial standing helps in creating a more effective strategy for debt repayment, savings, and investments. It can guide you in setting realistic financial goals, like increasing your net worth or becoming debt-free.
Meet a Qualified Financial advisor to discuss your financial problems
Consulting a financial advisor during periods of financial turbulence can be incredibly beneficial. Financial advisors possess the expertise and experience to navigate complex financial situations and can offer personalised advice tailored to your specific circumstances. Here’s how they can help:
Strategic Financial Planning: Advisors assess your financial situation to develop a plan that addresses immediate issues and achieves long-term goals, including budget adjustments and asset protection.
Debt Management Advice: They provide strategies for effectively managing or reducing debt, such as debt consolidation, creditor negotiations, or loan restructuring.
Investment Guidance: Financial advisors give insights on safeguarding your investment portfolio during market volatility, recommending adjustments to minimise losses and align with your financial objectives.
Expense Management: Qualified Financial advisors can help you categorise your spending, identify areas of excess, and suggest cutbacks or smarter spending habits. This can include tactics like identifying tax-saving opportunities, suggesting cost-effective insurance policies, and planning for big purchases in a way that doesn’t derail your financial goals.
How to Stay Prepared for a Financial Crisis :
A solid emergency fund is step one:
Save enough to cover 3-6 months of fixed expenses. This gives you a safety net if a crisis strikes. Having this cushion of savings can help you manage essential costs like food, housing, and utilities in the event of unemployment or another loss of income. An emergency fund helps prevent you from immediately falling behind on critical payments or racking up costly debt due to unexpected financial hardship. With adequate emergency savings, you buy yourself time to get back on your feet after a setback. It’s your first line of defence when faced with a job loss or other crisis. So build up your emergency reserves, and replenish them once used. They provide stability when you need it most.
Also essential? Having adequate insurance:
Make sure you have health insurance coverage to avoid massive medical bills in the event of illness or injury. Look into unemployment insurance as well which provides some income as a stopgap between jobs if you lose your position. Having these critical insurance policies in place can help you avoid compounding a job loss with hefty healthcare costs or an abrupt halt to all income. Insurance acts as another financial safety net when a crisis strikes. It helps fill gaps, easing the burden when you most need support. Make sure you understand what’s covered and maintain continuous coverage even when times are good. Insurance is part of proper emergency planning and preparation for the unexpected.
Additionally, build up alternative income streams:
Consider starting a side business, creating passive revenue channels through investments or real estate, or taking on freelancing gigs. Having these backup sources of income can serve as stopgaps if you unexpectedly lose your primary job and salary. Diversifying how you generate income gives you alternatives to tap into for supporting yourself and covering expenses in periods of crisis. Rather than relying solely on one employer or job, cultivate multiple income streams. This provides fallbacks that you can activate if and when you need them. Losing one income source is less catastrophic if you have supplementary ones already flowing. Be proactive about establishing these alternative options long before you actually need them.
Budgeting and Planning:
Review and control your spending regularly so you can free up funds to allocate towards financial safeguards. Create a budget, scrutinise expenses, reduce nonessentials, and commit to saving consistently. Making smarter spending choices allows you to build up reserves, emergency savings, and insurance coverage during calm seasons so you have a buffer when faced with squalls. Financial preparation takes conscious effort, discipline, and lifestyle sacrifice. But regularly parking funds in your safety net makes it available right when you need it most. Take advantage of stable times to lock down your protections. Whether the economy is smoothly sailing or facing storms, diligently funnel a portion of your income into safeguards. This prudent money management ensures you can float when rough seas arise.
To Wrap up
None of us is immune to sudden misfortune. Markets shift, and companies restructure. But we have power over how prepared and resilient we are when challenges arise.
Be proactive about your emergency planning. Treat savings and insurance as must-haves, not nice-to-haves. And have backup income streams ready to tap if the need arises.
With the right crisis precautions in place, you can navigate through periods of uncertainty and unemployment. Temporary setbacks need not sink you indefinitely. Wise financial preparation ensures you can bounce back stronger.
