A crisis means a time of intense difficulty or danger. And in financial terms adversity, loss faced in terms of money value by anyone due to unavoidable reasons and or due to own ignorance is what we could call a financial crisis. Anyone can face this adversity at any age, anytime. External events are not under the control of individuals. So financial crises due to such events are unavoidable. However, what we can do is we can avoid or keep away from the financial crisis which may be the result of our own ignorance and or mistake.
Let’s have look into 8 principles to avoid financial crisis:-
1. Get Knowledge
Educate yourself. If you want to excel in any field, what we must have is knowledge of that particular field. And to become knowledgeable what we have to do is we must take education in that respective field. So, whenever you start investing in any financial product do your own research, read articles, watch videos. Knowledgeable people can ask better questions and can make better decisions.
2. Protect your Capital
Investing is important. But, protecting the capital which you have already built-up is more important than it. What I mean is, have sufficient medical insurance as well as insure your valuable items too. Having no medical insurance in the current scenario would not only trouble you, health wise but it would also affect your financial health. You would not realize when your capital was wiped-out in any medical emergency. And that’s why you must be adequately insured.
3. Prepared for uncertainty
We never know what will happen in the next minute or so. Life is very much uncertain. We may face issues like job loss, death of bread earners in the family, market affected loss, loss due to economic uncertainty, political distress. So the number goes on. What we can do is we must create adequate funds to support us at the time of uncertainty. Everyone should have an emergency fund which equals to 5 to 6 months of your monthly expenses. It means whatever uncertainty your 5 to 6 months of expenses can be easily assured. Therefore, we must have a plan and prepare in advance to face any kind of uncertainty.
4. Be Tough
We should have a tough character not only physically but we must be mentally tough. Because, in any adverse situation w.r.t. financial front, those who are mentally tough can easily make a way out of it. Tough time is temporary but people who are tough in nature are permanent and therefore they can face anything; what may come.
5. Follow Diversification principle
Your portfolio should be diversified enough so that loss from one corner could be set-off by another for the time being. Investing only in one industry or one type of product is not suggestive. We should be open minded and should take the benefits of investment made using or keeping a diversified mindset.
6. Futures & Options (F&O)
F&O not everyone’s cup of tea. If you are focusing on the long term and not akin to the other products in the market then do not trade in F&O. F&O not only requires experience, talent but also it requires a character which remains calm and peaceful in any adverse situation in the market and it couldn’t be impatient due to market ups-downs. Therefore, please remember that trading in F&O is not everyone’s cup of tea.
7. Stock Falls
Whenever the market goes down it is not implied that we must have to sell it off or buy stocks. Our every action should be backed by proper data in hand and research.
8.Use your own funds
Many of us take personal loans from the banks and or friends to start their investment journey. Never ever go for this option. Always use your own funds to invest. When you borrow funds, you have to bear interest and if your investment is not giving that much return then whatever you are earning is actually not earning. For e.g. if you are paying @12% and you have just started investing in SIP of Mutual Fund, which gives you hardly around 10% return at initial stage then actually your earning is zero. It is always advisable to use your own funds to invest.
Follow these principles and enjoy your investments.
Be Blissful!
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