Are you aware when can the next financial crisis is going to strike through?
Well, when we hear the word ‘financial crisis’, it certainly brings in a terrible fear among us.
Financial crisis is a real catastrophe and apparently, is worrisome enough to send down chills to your financial soul.
Whether or not we are close to the next financial crisis takes a lot to explain and although unpredictable, we need to be prepared.
Let us have a close look to when the next financial crisis is and how to stay ahead of the game.
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Any thought of a fiscal catastrophe such as job loss, car wreck, illness, is fearsome enough to keep you restless.
However, a prospect of anything pricey or beyond your control may bother less when you are duly prepared.
With the markets volatile than ever and continuous geo-political threats, the next financial crisis doesn’t seem too far.
Hence, with the presumption that the next financial crisis is not that far, you ought to take splendid preventive steps.
According to several economists and market experts, the next financial crisis is imminent, looking at the current market scenario.
Financial crisis does not only hamper the market but it also brings in a lot of hurdles to your personal finance as well.
The market is pretty much in debt now and revitalizing it from the current position is something that is beyond.
Although it is true that money itself is a cause of worry and stress, however, the current global economic meltdown has left many trembling in fear.
People are afraid now of losing their houses or savings to this economic meltdown.
A Deeper Research into the Next Financial Crisis
The next financial crisis is imminent and the market recently have gone through several scenarios that makes it clear.
Over the past many years, the global monetary policies have been super-easy.
Nevertheless, it has fallen prey and now caught up in a debt trap of its own process.
Keeping up with the trending monetary path is useless and potentially dangerous.
However, at the same time, reversing from this path has its own set of risks and is followed by another crisis knocking at the door.
We could only hope that reforms brought in by policymakers to face-off such a situation is simultaneously evolving.
It is undoubtedly imprudent to just sit back and pray for the next financial crisis never to happen.
Going with the current monetary policies brings in a fear of inflation.
At the same time, the lack of economists’ understanding about the potentiality and inflation process could make it worse.
The situation could easily get out of hand and literally you can do nothing about the next financial crisis.
Inflation, nevertheless, is not just the only threat we would have to face.
The rate at which the debt ratios were increased over the decades even after crisis showed up is really absurd.
This was a primary concern for the advanced economy prior to the crisis, however, since then it became global threat.
Moreover, a risk tolerant attitude has disturbed the financial stability, thereby decreasing the profit margins drastically for several conventional organizations.
Most importantly, this monetary system encourages resources misallocation by banking institutions and other financial organizations, which makes it more fragile.
Due to this kind of actions, the increasing debt commitments can’t be honored as it should be.
Can Monetary Policies Be Normalized to Averse the Situation?
The question now comes is that whether this monetary policy can be normalized to averse the next financial crisis situation.
Well, normalizing these monetary policies carries its own set of risks.
Apparently, a global economy that is strengthened is more preferable in contrast to a fluctuating economy.
The pressures of inflation in this situation could lead to the tightening of monetary system leading to destabilized consequences.
Governments as well as international organizations should readdress the bankruptcy rules and procedures.
The ones which is not possible to service should not need to be serviced.
Any kind of unintended regulatory norms consequences reduces the liquidity of the market.
Financial markets may react in ununiformed way to the signs of better growth even when inflationary pressures do not exist.
In advanced countries, sovereign bold returns are at drastically low levels and are perfect for reversals.
If it does go for reversals, then it might have essential impacts on the over-extended values of many distinct assets.
Which Actions Can Be Taken to Alter the Outcome?
What actions do the policymakers need to prepare for the outcome?
How can they ensure everyone is ready to face-off the next financial crisis?
Central banks and governments collaborating with international institutions should negotiate understanding memorandums to decide their individual role in times of crisis.
‘War games’ can be an exemplary adjunct to such scenario.
It is imperative to ensure splendid liquidity levels for stabilizing the market as well as the entire financial system.
For example, in the U.S, several provisions of the Dodd-Frank act was implemented during the time of crisis.
It would hamper the Federal Reserve in terms of providing domestic as well as international liquidity.
Apparently, the most imperative steps for the government and banks is to readdress the bankruptcy process.
The debt that is not possible to service should not be addressed.
They should bring in legislation to ensure this happens in a disciplined way.
A recent study at OECD revealed that bankruptcy process for private agents fell short and was not sufficient.
The restructuring process of sovereign debt is not sufficient and upto the par too.
It is imperative to take these steps for avoiding the next financial crisis and a market downturn.
Proper and timely steps can assist resolving the debt laden issues and prevent the next financial crisis.
The need for this preparatory steps is crucial since our scope of reacting to counter-cyclical macroeconomics is limited.
We should always be prepared for the worst, even if we hope for the best.
How to Avoid the Next Financial Crisis?
As we know that the next financial crisis seems way too close, preparing for it is absolutely imperative.
Although we cannot stop the next financial crisis, however, we could surely take some initiatives to stay ahead of it.
Below we will look onto some of the most imperative measures we can help us from falling prey to it.
Maximizing Liquid Savings to Stay Safe from the Next Financial Crisis
Liquid savings is always prudential to save yourself from facing the next financial crisis.
Go for distinct cash accounts such as checking, money market savings, bank savings, CD or certificate of deposits etc.
Even short term investments to government bonds could help you the most in times of financial crunch.
You will always want to turn your heads to these accounts since their value is consistent.
They do not change with the market unlike equities, stocks, ETFs etc.
It signifies that you could withdraw your money anytime without worrying any financial loss.
In contrast to retirement accounts, you do not have to pay penalties for premature withdrawal or any tax penalty.
However, CDs are an exception and you need to forfeit some interest value for premature withdrawal.
You should not invest into high risk investments such as stocks unless you have advance liquid cash worth some months.
It depends on your own financial risk tolerance and obligations to decide how much liquid cash you need.
If you have several obligations such as paying mortgages and other stuffs, you need to have more liquid cash.
Always keep room for liquid cash to run for three months atleast.
If you are unemployed that should be at least for couple years.
Always Make a Budget to Avoid the Next Financial Crisis
If you are unaware of how much money is coming in or going out every month, you won’t be able to stack it up.
If you want to stack up money, you need to know how much you need.
Budget is the best way to know it.
Keeping a budget helps you in deciding whether you are underspending or overspending on your money.
Budget is surely not going to change your behavioral finances, but it is surely a decider.
It won’t stop you from changing but will aid in knowing whether you are satisfied with the current expenses and where your money is going.
This helps you to know your current financial position.
Cut on Monthly Bills
This is an important part to save yourself from the next financial crisis.
You may not have to cut down on it now, but you should start doing it to prevent the next financial crisis.
Cut down your expenses on anything that is unnecessary.
If you make a practice of reducing your monthly expenditure, you can pay your bills easily when there is a crunch.
You will have less difficulty in paying off your bills when there is a crisis if you practice from now.
Look at your budget now and decide whether you are spending on something unnecessary.
Do not waste your money.
If you are paying for a bank checking account, then look for a bank that serves free checking.
Are you spending on your landline that you seldom use?
Cut on it and you will see, you are on a good budget.
You can find several ways to save your money and cut down on unnecessary expenses.
Use electricity wisely and ensure no fans, lights are turned on when you are not there.
It will help you trim down on electricity bills, thereby saving you money.
You can also save on your insurance policies if you research a bit and look for companies that gives extension.
Manage Your Bills Wisely
There is no need of wasting money on late payments fine or finance charges, yet we do it always.
During a crisis or job loss, you need to be over cautious in this area.
If you become a little organized, then you can save a lot of money on your monthly bills.
A single late credit card payment could make you suffer a loss of almost $300 annually.
You could also cancel your card when you think is the time as the last resort to save your money.
Set couple dates in a month to check out if you missed out on any bills.
You can also schedule electronic payment options or mail alerts so you can pay several days prior to due date.
If you have problems handling so many accounts, you could prepare a list to ensure everything.
This way you will know which comes first and which the most important ones are at times of the next financial crisis.
Maximize the Value of your Non-Cash Assets
To prepare yourself for the next financial crisis, you need to check all the options you have.
Do you possess frequent flyer miles that can be used while traveling?
Is there any extra food items in your house which you could plan of using as meals?
It will cut down plenty of money on your grocery bills.
Is there any gift card that you could sell for getting cash or use towards your own entertainment?
Does your credit card offer you rewards that you can turn into gift cards?
All these non-cash assets will assist you in lowering down on monthly expenditure.
However you have to know it and use it wisely to get optimum benefits.
Pay Back Your Credit Card
If you possess a credit card and owe a debt, then it is taking a decisive portion of the monthly budget.
If you pay back the debt of your credit card, then you can save plenty of money on your monthly budget.
You can be in a position to start your nest egg and place yourself in a more secured financial position.
If you can get rid of your interest payments, you can use the money towards more important things.
Get Better Credit Card Offers
If your current credit card has balance, you can transfer it to another credit card having lower interest rates.
Lower interest rate means you can pay it sooner and have some room in your month budget.
You should ensure that the savings are more compared to the balance transfer fees.
If you transfer your balance to a new card with less introductory APR, pay it off during the introductory period.
Decreasing the rates your credit card is charged is the first step towards ridding of debt.
Earn Extra Cash to Face the Next Financial Crisis
Always look out for earning some extra amount of cash.
You can have plenty of options to earn that extra cash such as garage sale, freelancing, chasing credit cards etc.
These small amounts of cash could add up to build a significant amount of money over the course of time.
It will help in managing your finances better and assist in paying bills better, thereby surviving the next financial crisis.
Expert Opinions on the Next Financial Crisis
There have been constant remarks on the next financial crisis from renowned economists and market leaders.
Here we will check out a few of them to understand their opinions.
The financial crisis of 2008 left many unemployed and was the Great Recession Era.
It took several years for USA to recover, however, they can still feel the crumbling effects.
In accordance to Microsoft Co-founder, we should all be prepared to embrace the next financial crisis.
During a Reddit show when asked about the next financial crisis, he answered that it is certain to happen, however, time unknown.
He went on saying that we fortunately survived the 2008 crash, and Warren has talked about it several times.
However, he is the one who is experienced on this area and more knowledgeable than Gates- he said.
Warren Buffet has said that as an investor, you need to be a level ahead and follow the course in case of crisis.
A large amount of debt is definitely a big No-No to Warren Buffet in terms of an investor.
He insists on keeping substantial amount of cash in reserve if you want to survive the next financial crisis.
Buffet said he always prefers keeping $20 million on hand for better financial flexibility which none can simply level up.
Warren said always to be ready since the light can turn from green to red anytime without even reaching yellow.