How to Prepare For a Financial Crisis [Video]

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Global Financial Meltdown – One Of The Best Financial Crisis Documentary Films

Storm ahead? Here’s how to prepare for a financial crisis

As the IMF and others warn us that a downturn (crisis) could be coming, we examine how you can protect yourself

Dark clouds gather as the sun sets behind the towers of the City of London Crisis
Cloudy outlook … some experts think a crash is around the corner. Photograph: NurPhoto/NurPhoto via Getty Images

Every 10 years or so a financial crisis hits global markets – and it’s 10 years since the last one. This week the IMF warned that not only are the storm clouds of the next global financial crisis gathering but also that the world financial system is unprepared for another downturn.

Will your pension be wrecked? The value of your house plummet? Will your industry be hit by a wave of redundancies? The bad news is that even the big investment houses, which traditionally talk up markets in the hope that you will invest, are pessimistic about 2019. financial crisis

Edward Bonham Carter, vice-chairman of Jupiter Asset Management (and yes, he has a famous sister), this week warned that “the party is coming to an end”.

Over the last decade, central banks have fuelled a boom in share values and property prices by slashing interest rates and pumping the financial system with virtually free money, called “quantitative easing”. Now, debt levels are worse than ever, just as the US-China trade war continues, and the Brexit saga staggers on.

“Remove the crutches that have supported global growth for a decade, throw in a trade war between the world’s two largest economies, add a dash of wage inflation and a side dish of Brexit and you have a recipe that may prove rather unpalatable to global markets in 2019,” says Bonham Carter.

Many investment managers grimly warn about overvaluations in financial markets. “The US equity market has never been more expensive compared with other regions,” says Nick Mustoe, chief investment officer at Invesco. Just six tech stocks – Facebook, Amazon, Apple, Netflix, Microsoft, and Google – are responsible for two-thirds of global stock market returns so far this year. “In my view, that isn’t sustainable,” says Mustoe.

So where does this leave the average punter on the street? Here’s what you can do now to protect yourself from a crisis – if you share the view that 2019 is going to be a bigger turkey than Christmas.

Batten down your pension fund

If you have a stock market-based pension scheme at work, most allow you to shift your investments around between shares and bonds – and put the whole lot into cash deposits should you wish. Just ask your pensions or HR department.

If you are young, this is probably foolish; you won’t be drawing the money for 30 years or so, and trying to “time” markets is phenomenally risky.

If you are middle-aged, your pension fund is probably about 60% in shares and 35%-40% in bonds. By all means, tilt your fund towards bonds and cash to protect yourself against a crisis, but you will need to remember to shift it back into shares when you think the outlook is better. Most people fail to do this and lose out as market movements – both up and down – are typically quite sudden.

James Daley of consumer research agency Fairer Finance says: “It doesn’t tend to make sense to try to anticipate month-by-month movements in the market and the economy. Most investors will have their money in a balanced portfolio, which reduces risk by spreading your savings across stocks, bonds, and other asset classes.”

Build up your rainy-day fund

Losing your job is the biggest risk from a financial crisis.

“If you don’t already have an emergency savings safety net, now is the time to focus on building one. It’s sensible to have three to six months’ worth of expenses in an easy access account so that if the worst were to happen, you don’t run out of cash while you get back on your feet,” says Sarah Coles of Hargreaves Lansdown.

Protect yourself from a financial crisis, crashes

The lesson from the last crash is that banks, even the very biggest, can fail. Currently, the UK’s Financial Services Compensation Scheme will protect the first £85,000 you hold with each financial institution (excluding NS&I, which is backed 100% by the government). But several banks are members of the same institution, so if, for example, you have money in Lloyds, Halifax and Bank of Scotland, it will all be held by the Lloyds Banking Group, with just one £85,000 protection, so spread your savings around.

Bargain hard on house prices, and rearrange the mortgage

The latest report from Britain’s surveyors and house valuers this week was its tybbzvrfg va lrnef. You certainly don’t want to pay fancy prices under these conditions, so bargain hard. The biggest property website, Rightmove, is forecasting that prices will be flat across the UK in 2019, and fall by 2% in London.

What to do with your mortgage is tougher. The chances of interest rates rising amid a fresh financial crisis is unlikely. Equally, rates are still so low everywhere that big cuts are unlikely, too. Five-year deals are looking very attractive (starting at 1.96% from Yorkshire building society) and give you total certainty on monthly repayments.

Shorting the market

If you are convinced that the stock market is going to crater over the coming year, you can “short” it and produce a profit by using exchange-traded funds (ETFs). But really you are moving into pure gambling territory (and your company pension fund manager won’t permit it).

For example, the Legal & General FTSE 100 Super Short Strategy Daily 2X inversely replicates the index, so pays out twice the size of a fall. If the FTSE 100 falls 4%, you make 8%. ETFs can be bought at most online trading platforms once you have set up an account. But as investment manager Fidelity warns: “In a short sale, losses can accumulate far beyond an investor’s original.

Source:  The Guardian

10 Ways To Prepare For A Personal Financial Crisis

The thought of being hit with a major negative event that could affect your finances, like a job loss, illness or car accident, can keep anyone awake at night. But the prospect of something expensive, and beyond your control, happening becomes less threatening if you’re properly prepared. This article will describe 10 steps you can take to minimize the impact of a personal financial crisis.

Maximize Your Liquid Savings

Cash accounts like checking, savings, and money market accounts, as well as certificates of deposit (CD) and short-term government investments, will help you the most in a crisis. You’ll want to turn to these resources first because their value doesn’t fluctuate with market conditions (unlike stocks, index fundsexchange-traded funds (ETFs) and other financial instruments you might have invested in). This means you can take your money out at any time without incurring a financial loss. Also, unlike retirement accounts, you won’t face early withdrawal penalties or incur tax penalties when you withdraw your money – one exception is CDs, which usually require you to forfeit some of the interest you’ve earned if you close them early. (Learn more in our Certificate of Depositguide.)

Don’t invest in stocks or other higher-risk investments until you have several months’ worth of cash in liquid accounts. How many months’ worth of cash do you need? It depends on your financial obligations and your risk tolerance. If you have a major obligation, like a mortgage or a child’s ongoing tuition payments, you might want to have more months’ worth of expenses saved up than if you’re single and renting an apartment. A three-month expense cushion is considered a bare minimum, but some folks like to keep six months or even up to two years’ worth of expenses in liquid savings to guard against a long bout of unemployment.

Make a Budget

If you don’t know exactly how much money you have coming in and go out each month, you won’t know how much money you need for your emergency fund. And if you aren’t keeping a budget, you also have no idea whether you’re currently living below your means or overextending yourself. A budget is not a parent – it can’t and won’t force you to change your behavior – but it is a useful tool that can help you decide if you’re happy with where your money is going and with where you stand financially. (Do you have enough savings to cover the costs of unforeseen crises? Learn how to plan ahead in Build Yourself An Emergency Fund.)

Prepare to Minimize Your Monthly Bills

You might not have to do it now, but be ready to start cutting out anything that is not a necessity. If you can quickly get your recurring monthly expenses as low as they can be, you’ll have less difficulty paying your bills when money is tight. Start by looking at your budget and see where you might currently be wasting money. For example, are you paying a monthly fee for your checking account? Explore how to switch to a bank that offers free checking. Are you paying $40 a month for a landline you never use? Learn how you might cancel it, or switch to a lower rate emergency-only plan if you needed to. You might find ways you can start cutting your costs now just to save money.

For example, are you in the habit of letting the heater or air conditioner run when you’re not home, or leaving lights on in rooms you aren’t using? You may be able to trim your utility bills. Now might also be a good time to shop around for lower insurance rates and find out if you can cancel certain types of insurance (like car insurance) in the event of an emergency. Some insurance companies might give you an extension, so look for the steps involved and be prepared.

Closely Manage Your Bills

There’s no reason to waste any money on late fees or finance charges, yet families do it all the time. During a crisis of a job loss, you should be extra studious in this area. Simply being organized can save you a lot of money when it comes to your monthly bills – one late credit card payment per month could set you back $300 over the course of a year. Or worse, get your card canceled in a time when you might need it as a last resort.

Set a date twice a month to review all your accounts so you don’t miss any due dates. Schedule electronic payments or mail checks so your payment arrives several days before it is due. This way, if a delay occurs, your payment will probably still arrive on time. If you’re having trouble keeping track of all your accounts, start compiling a list. When your list is complete, you can use it to make sure you’re on top of all your accounts and to see if there are any accounts you can combine or close. (Involuntary unemployment credit card insurance may help if you’re laid off, but it may just help your credit card company, check out Insuring A Credit Card Against Job Loss.)

Take Stock of Your Non-Cash Assets and Maximize Their Value

Being prepared might include identifying all of your options. Do you have frequent flyer miles you can use if you need to travel? Do you have extra food in your house that you can plan meals around to lower your grocery bills? Do you have any gift cards you can put toward fun and entertainment, or that you can sell for cash? Do you have rewards from a credit card that you can convert to gift cards? All of these assets can help you lower your monthly expenses, but only if you know what you have and use it wisely. Knowing what you have can also prevent you from buying things you don’t need.

Pay Down Your Credit Card Debt

If you have credit card debt, the interest charges you’re paying every month probably take up a significant portion of your monthly budget. If you make it a point to pay down your credit card debt, you will reduce your monthly financial obligations and put yourself in a position to start building a nest egg or be able to build one more quickly. Getting rid of interest payments frees you to put your money toward more important things.

Get a Better Credit Card Deal

If you’re currently carrying a balance, it could really help you to transfer that balance to another card with a lower rate. Paying less interest means you can pay off your total debt faster and/or gain some breathing room in your monthly budget. Just make sure that the savings from the lower interest rate are greater than the balance transfer fee. If you’re transferring your balance to a new card with a low introductory APR, aim to pay off your balance during the introductory period, before your rate goes up. (Reducing the rate charged on your credit card balance is the first step to getting out of debt. For more, see Cut Credit Card Bills By Negotiating A Lower APR.)

Look for Ways to Earn Extra Cash

Everyone has something they can do to earn extra money, whether it’s selling possessions you no longer use online or in a garage sale, babysitting, chasing credit card and bank account opening bonuses, freelancing or even getting a second job. The money you earn from these activities may seem insignificant compared to what you earn at your primary job, but even small amounts of money can add up to something meaningful over time. Besides, many of these activities have side benefits – you might end up with a less cluttered house or discover that you enjoy your side job enough to make it your career.

Check Your Insurance Coverage

In step three, we recommended shopping around for lower insurance rates. If you’re carrying too much insurance or if you could be getting the exact same coverage from another provider for the same price, these are obvious changes you can make to lower your monthly bills. That being said, having excellent insurance coverage can prevent one crisis from piling on top of another. It’s also worth making sure that you have the coverage you really need and not just a bare minimum. This applies to policies you already have as well as to policies you may need to purchase. A disability insurance policy can be indispensable if you sustain a significant illness or injury that prevents you from working, and an umbrella policy can provide coverage where your other policies fall short. (For more check out The Disability Insurance Policy: Now In English.)

Keep Up with Routine Maintenance

If you keep the components of your car, home and physical health in top condition, you can catch and problems while they’re small, and avoid expensive repairs and medical bills later. It’s cheaper to have a cavity filled than to get a root canal, easier to replace a couple of pieces of wood than to have your house tented for termites and better to eat healthy and exercise than end up needing expensive treatments for diabetes or heart disease. You might think that you don’t have the time or money to deal with these things on a regular basis, but they can create much larger disruptions of your time and your finances if you ignore them.


Life is unpredictable, but if there’s anything you can do to stave off a financial crisis or disaster, it’s to be prepared and be careful. With the right preparation, you can prevent a financial crisis from ever becoming a crisis and only have to deal with a temporary setback.

Source: Investopedia

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Thanks for Reading How to Prepare For a Financial Crisis

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