ACCT110 Personal Financial Planning- Minimize Future Risks
Answer
Introduction
Financial crisis is any situation where financial assets lose their standard value significantly. This kind of situation happened in 2008, branded the 2008 financial crises. It is regarded as the worst crises to ever happen ever since the 1930s. Financial crises are caused by credit default swaps, infighting among financial regulators, the scrutinization of loans, and greed from the business people, politics and so on. Which leave Sevier damages to the economy, extreme poverty, reduced asset value and unemployment.so as to avoid such situations, individuals should address the following concerns while developing their financial plan (Chodorow (2014).
- Establishing money reserves. Based on the lessons learned, the ability to balance flexibility and discipline in responding to unexpected issues is one of the concerns to be addressed. Reserved cash provides liquidity of money available to help resolve the uncertainty at the time of need, by providing funding for the unexpected expenses and contribute to reducing, the selling of assets at inappropriate times. Which in turn helps the potential of a substantial long-term investment for the individuals.
- Strategic use of debts- in 2008 most people opted to take bank loans to buy homes in the real estate industry, with the perception of taking advantage of the appreciation value of assets in the sector. This later became a problem when a lot of people started defaulting their debts. For the reason that house prices have fallen very low that it could not even finance the debt. By this individuals should take more caution on the purpose of the debts they take, and its value towards repayment?
Approaches to minims future financial risks
So as to be well prepared for another situation like the 2008 financial crises, individuals should take caution of the following focus areas when developing their financial plans.
- Adequate financial protection for any intended investment people should make use of the insurance companies by securing their investments in case of any unexpected occurrence. Based on the best insurance contract and most efficient one.
- Understanding one's current financial position- it is best as one can know their net worth. This helps determine effective personal goals, and at what time are they best achieved (Valsaraj, et al. (2016).
Reference
Valsaraj, P., Jindal, A., & Chopra, N. (2016). Workshop on Personal & Business Financial Planning-Scope & Opportunities by Mr. Raviraja Nayak, Associate Regional Manager, Business development, ICICI Prudential, Udupi.
Chodorow-Reich, G. (2014). The employment effects of credit market disruptions: Firm-level evidence from the 2008–9 financial crisis. The Quarterly Journal of Economics, 129(1), 1-59.
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