What is financial crisis ? A financial crisis is a situation which is often described as a decrease in value of assets,
or perhaps a panic or a bank run during which investors sell off their assets or withdraw money from savings account due to the fear that the value of their assets will drop if they remain in a certain financial institution.
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financial crisis vs economic crisis
Most at times, people tend to think that financial crisis means same thing as economic crisis,
Although financial crisis and economic crisis might be confusing when comparing or might as well seem like the same thing but honestly these two terms are clearly two different things that can’t even be used interchangeably.
So in essence, an economic crisis encompasses the economy as a whole with it’s numerous sectors from manufacturing industries to even the financial industry.
In comparison the financial crisis exclusively affect the financial sectors like the bank, although if a financial crisis is not attended to in due time can lead to economic crisis.
For example if the money or stock market of a particular country collapses due to the fact that investors speculate the value of stocks will fall due to the financial situation and out of panics sells all their shares, of course this will lead to financial crisis.
Examples of financial sectors are Banks, micro finances, stock market etc.
Types of financial crisis
1: Currency crisis
this is when a fixed exchange rate regime collapses, or a country goes into a free fall
3: External debt crisis or Balance of payment
this occurs when a country cannot attract the capital needed to finance a current account deficit.
3: Sovereign debt crisis
this is when the government cannot afford to pay the interest on their existing debt eg Greece
4: Banking crisis
This happens when the stability of banking system is low example of country where this has happened is in Cyprus
5: Household debt crisis
6: Broad financial crisis
This type of financial crisis combines many elements of the above mention crisis.
Causes and effects of financial crisis
What exactly is credit crisis ? Credit crisis is a worldwide financial fiasco that involves crime like
- frozen credit markets
*Collateralized debt obligation that affects everyone
This means borrowing money to amplify the outcome of a deal.
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How to survive financial crisis
1: Reduce your debt
Reducing your debt means limiting the way you go accumulating debts, if you can reduce your debt now, there’s at least a 90% assurance that you can survive financial crisis when it surfaces
2: Learn to differentiate between your creditors
If you can be able to differentiate between your creditors and able to keep your super creditors like paying your federal income taxes and also saving at least a reasonable ratio you can actually survive any financial crisis
3: Know which assets are safe and the one that are not
One of the scariest thing about an economic crisis and not being able to pay your debt is wondering what could be taken from you to cover that debt.
For instance you are declared bankruptcy with lots of debt during a financial crisis, some of your possession/properties will be forcefully taken from you to cover up those debts even if they are not due,
Although these varies from states to states as laws or rules are different, but one thing is sure and that is , all the things essential for living like your house, clothes, waters etc will not be taken from you
4: Maximize your liquid savings
5: Learn skills so you don’t need to outsource
When I say learn skills I mean those menial skills / jobs you pay for everyday or once in a while, if you can learn to do them yourself this is a big credit as this will help reduce your spendings
6: Start living frugally now
This doesn’t mean living cheap as it might seam, but if you can learn to economize your self, reduce your spendings and keep saving , this means when financial crisis hits, you won’t even be affected as you have prepared for it earlier
7: Renegotiate any insurance contract on monthly expenses if there is any
If you have your life , health , property etc insured, you can call your insurance company and negotiate with them so you could pay lesser insurance fee this will help you safe some money
8: Have multiple income streams
Don’t depend on one income, if you have 3 or more side businesses aside your main business, that means you will have money coming in from different angles and this will increase your saving percentage and will prepare you for any financial crisis that may arise in the future.
9: Invest in cryptocurrencies now
Researchers has predicted that in 2030, they will be few or no country using the paper money, almost all countries will be making use of digital currencies, so if you can start pocketing some cryptos now, you will be on the safer side when that times comes, you can even start mining free crypto on Cryptotab
10: Don’t neglect routine maintenance
Just like the popular saying , ” a stich in time saves nine” don’t wait till things get worse before you can check them out and have them repaired, for instance you can check your house hold properties like cars, chairs, television and have them maintained with little money so you don’t have to pay bigger money when it get spoilt.
11: Tell people about your present situation
Don’t hide your problems, tell people about your financial struggles and you will be amazed, you never can tell how many people that are willing to help pull you out of your financial struggles,
Don’t be embarrassed to open up from time to time tons of people seem to be facing a lot of financial crisis and you are not unique, it happens to everyone.
12: Start growing your own produce
You can start up a small garden beside your house and grow some of the vegetables you use in cooking like tomatoes, pumpkin leave, okra etc, this means you don’t have to buy them and as this you can save some money
13: Boost your credit score
there are times when inflation or deflation occurs in a country and interest rates drops, people tend to sell their business at a lower rate during this time, and yes this is the best time to buy things and avoid loans to boost your credit score
14: Be prepared to share and start now
If you are in the position to help someone close to you either a neighbor or a random stranger do it with a genuine heart, help people get on their feet so that when they are in the position to help they will extend to others and the cycle continues, this will help prevent financial crisis
15: Acknowledge that downtown’s happens
You should know that downturns are inevitable and one doesn’t know when it’s going to be, the best you can do is get yourself prepared so it won’t caught you off guard.