Many people are optimistic that the worst is behind us and surging stock markets in North America show that consumer confidence is on the rise. However, not everybody is certain that the future is bright.
Arturo Bris, Professor of Finance at the world-renowned IMD Business School in Switzerland, used statistical probabilities to predict another global financial crisis will begin in April 2015. His findings suggest that the financial crisis will emerge from one of, or a combination of, triggers:
- a stock market bubble
- banking collapse in China
- an energy crisis
- a real estate bubble
- corporate bankruptcies due to an interest rate increase
- war and conflict
- increasing poverty
- the surplus of cash in banks and hyperinflation
Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, suggests to Canadians that they need to prepare for an economic crisis even though the economy is performing reasonably well –
“Without a plan and proper preparations, a financial crisis can wipe out savings and shatter your future dreams,” warns Schwartz. “Just like we run fire drills to prepare for an emergency situation, Canadian families should take precautions to ensure their own financial safety in the event of a sudden financial shock.”
Consolidated Credit offers the following tips to Canadians who want to be prepared:
- Commit to saving – Build up an emergency fund that will carry you through a job loss or a situation where income is reduced. This needs to be a priority when you get your paycheque each month. Contribute a consistent amount (5-10%) until your fund has enough to carry you through 6 months of unemployment. This will give you the buffer you need to avoid debt while getting back on your feet.
- Avoid overextending yourself – Using 10% of your take-home pay on servicing your debts is manageable. But, if you experience a loss or reduction in income, that 10% figure is going to increase which can lead to a debt management crisis. It’s a good idea to avoid accumulating credit card debt that will become a burden in tough times.
- Pay down debt – If you want get rid of a tree in your backyard, you don’t just trim the leaves. So, why do you make the minimum payments on your debts? It will take a long time to get rid of that debt if you are just trimming the edges. Instead, attack that debt like you are chopping down a tree. Focus on decreasing the principal and eliminating that debt once and for all.
If you want to learn more about making responsible financial decisions, check out Consolidated Credit’s free Personal Finance educational section. If you’re struggling with debt, call one of our trained counsellors today at 1-888-294-3130 for a free debt analysis.