How to be prepared for financial crisis

You must have recently read news about Boris Becker actioning his trophies and other memorabilia. It was indeed sad that one of the greatest stars of tennis had to sell his most prized possessions to fund his bankruptcy and pay money to creditors. Back home too we often see well-off persons falling into financial crisis. Today, even Mr Anil Ambani is facing a financial crisis in his business group and was even at the verge of being arrested.

No one can guarantee that a financial crisis can never come in one's life. It may be due to wrong financial decisions, setbacks or unseen developments affecting your industry, loss of a job, any unexpected medical costs at home or even falling victim to any fraud. It is quite possible that even a single mistake or event can wipe out your years of hand work and the wealth that you have created. Not making big financial mistakes or blunders is at the cornerstone of your wealth creation journey.

What is also important that you are always careful to avoid any such scenario in future. Prevention is better than cure – this has to be practised. Being always prepared to avoid and even to deal with any financial crisis in important. Here are a few ways in which you can be prepared...

1. Separate business from personal finances: One of the most prudent decisions is to separate your business /profession with your personal finances if you are into any business. It is also important that you do not put at stake your personal wealth to meet your business needs and vice versa. Doing this may leave you without any financial backup in future. If the business is not doing good, it is better to find solutions within the resources available for business. Once personal assets are put at stake and business fails, you are left nowhere to go.

2. Prepare to be frugal: Being frugal does not mean compromising on your quality of life. Being frugal is all about avoiding unnecessary things in life and making the most of the resources already available. Whether be it business or personal life, being frugal helps in keeping your expenses down, reducing risks of any crisis and also making you better prepared for any crisis should it occur.

3. Do not leverage too much: Leveraging would mean taking too much credit or loan to finance anything. Leveraging to create assets which will increase in value in future is always better than investing in assets that depreciate. Even while taking credit to finance investments in income or wealth-creating assets or business, one should never go over-board.

1. Do not spread yourself thin: Quite often we have seen that people commit or deploy all their funds in business or different assets. A reserve or an emergency fund is what you must first aim for to create to finance any temporary setbacks or dull periods of business or profession. A good backup goes a long way in avoiding any crisis.

2. Do not put all eggs in one basket: Be it investing or in business or profession, it is always better to not risk everyone on one venture or investment. One of the most common things found in millionaires is that they have multiple sources of income so even if one is compromised, they are not likely to be affected much.

3. Take only justified risks: While taking risks is a part of business, it is not justified that any undue risk is taken, especially when it comes to unknown persons or any unexplored opportunity. Any risk, whether be it business or investment or any income opportunity has to be well-researched. If there is a promise of huge returns by someone, an offer too good to be true, it is not going to be true. Being in control, listening to your instincts, consulting your advisors and not falling prey to greed are some of the things you must practice.

4. Be adequately insured: It would be foolish if you are at a big financial loss which could have been avoided had you taken adequate insurance for a small cost. That small cost is the cost of peace of mind that you must pay but unfortunately, even that is seen as big till the time tragedy strikes. At a personal level, health, personal accident, critical illness, life, travel and home are some of the insurance policies available to you to avoid any likely financial risks arising from any unfortunate event. For your business/profession too there are many policies available to avoid damages by theft, accident, fire, legal claims, etc.

Being big in life:

There are many things that a person can create without huge financial investments. And these things will surely make you better prepared than anything else in life which can be counted. So what are these things?

1. A strong team: Building in a strong team in your business or profession can make you very grounded and stable in business. Being a good leader and investing in good people and helping them develop will always make you win as a team. At a personal level, having a team of a good banker, accountant or even a lawyer will help you in avoiding and managing your crisis better.

2. A strong brand: A strong goodwill and brand for your business or at a personal level also go a long way. Even at a personal level, if you are seen as a trustworthy and dependable person in your family and friend circle, it should help you a lot. This though comes over time when you also are helpful and supportive of those around you.

3. A strong network: A well-networked man is much more likely to be successful. Again, one of the most common things among millionaires is the strong network that they enjoy. A good social or business network brings opportunities and solutions too to the problems you may have. Do actively spend your time and resources in building a proper network in life.