Financial Resilience is your ability to adapt and survive financial hard times. We ALL face money troubles at some point in our lives. It helps to build resilience before you need it.
No one wants to live through difficult times. We all long for security; to live comfortably in the knowledge that tomorrow’s going be ok.
And if we’re honest with ourselves, we don’t hope that we can weather future storms: we pray for forever calm and smooth sailing.
Unfortunately, life is rarely smooth sailing. At some point, we ALL face some kind of hardships or money troubles. And it’s in our best interest to prepare now for the storms that life throws at us.
Resilience is the ability to withstand challenging life experiences and the capacity to adapt successfully in the face of adversity.
In other words, resilience helps you cope and recover when the SHTF (‘stuff’ hits the fan).
Below are the steps we can take now to build our financial resilience so that we can withstand and bounce back after economic (and other) setbacks and hard times.
1. Strengthen Relationships and Social Networks
A healthy relationship with other people and active participation in your community is essential for resilience.
Financial resilience is more than just money in the bank. Not only is the idea of the ‘self-sufficient man’ a myth, but isolating yourself is the opposite of resilience building.
Humans are a ‘herd animal’. We’re tribal. We are more successful and achieve more when working together, not alone. Civilization wouldn’t be possible if this weren’t so.
And yet, how often do we neglect our friendships and our family and our community because we’re too busy trying to get ahead?
Strong relationships not only make for a happier, healthier life, but they can also provide support in times of crisis and build resilience.
That support might come as a helping hand. It might be emotional support and encouragement (an ear to listen and a shoulder to cry on). Or it might be the wise advice we need to hear. Your social network can also help you find your next job or opportunity through word of mouth.
And of course, it works both ways. You are also there for your family and friends in their time of need.
An individual is only as strong as the community in which we live.
2. Reduce and Eliminate Debt
Owning assets outright (like your house) increases your security.
If you don’t owe any money on your house or car, you don’t have to worry about losing them if your income is reduced. Nor do you have to worry about how to make repayments.
If you don’t have credit card debt or personal loans, you can focus on meeting present and future expenses rather paying for past expenses. It’s harder to put food on the table, especially on a reduced income, if part of your income must go to servicing debt.
I’ve written a free eBook on making and implementing a debt reduction plan, which you can find here.
3. Build a Healthy Emergency Fund for Financial Resilience
An emergency fund is your short-term financial buffer against loss of income or unexpected expenses. It’s your peace of mind – your assurance that if you lose your job, for instance, you can feed the family and pay the bills until you find another one.
The bigger your emergency fund, the better prepared you are to weather financial storms. Here’s an article on how to build a healthy emergency fund while paying off your mortgage at the same time.
4. Insure your Assets
Adequate insurance helps protect your financial security if your assets are damaged or lost.
When considering insurance, don’t forget home, contents, car, life and income insurance. Compare policies as well as premiums, which means reading the PDS of each insurer before you insure or renew and make sure you understand what is covered and what isn’t. Ask lots and lots of questions.
Also, take time to calculate how much insurance you need – under-insurance will leave you short should you need to make a claim.
5. Develop Ways to Supplement Your Main Income
When it comes to investment, we know that diversification limits risk. And yet most of us only have a single income stream (a job), or more importantly, a single skill (a career) and this leaves us vulnerable should we lose that job.
You can reduce this risk and build financial resilience, not by getting more than one job, but by diversifying your skillset to make yourself more employable or by enabling you to make money outside conventional employment.
Maybe you can tutor, or sew, or clean, or garden or fix things. Maybe you can declutter your house and sell your stuff.
The point is to take a good look at the skills you have presently and make a list of all the potential income streams that you can fall back on if you need to.
Then take a look at how you can improve the skills you have, and learn new ones to further strengthen your income earning potential.
6. Hone your Frugal Skills and Habits to Weather Money Troubles
Frugal habits are the vehicle for reducing debt and building an emergency fund. But they will also come in handy should you fall on hard times.
You will be better prepared if you develop frugal skills now than if you try to learn new skills when times are tough, and you’re stressed about everything else.
Start by honing your skills on feeding the family for less. How far can you stretch meals? Can you cook meals from scratch? Can you creatively use leftovers? Can you grow some food to supplement what you buy?
Then look at skills and habits that will reduce your consumption. Can you entertain yourself and the family without electricity? Could you get by without a washing machine? Can you get by on less water? Can you shop second hand? Can you make do, recycle, reuse, reinvent? Can you mend or repair the things you own? Build or make things yourself?
All of these skills build your resilience and will see you in a better position in times of money troubles.
Future uncertainty can be a scary thing. But it’s also a fact of life. You can ignore it, or you can let worry eat at you to the point of inaction.
Or you can take measures to prepare against future uncertainty and then rest assured that when money troubles arise, you have done the best you can to prepare for them and this preparation will see you safely through.
Do you take steps to build financial resilience?
Melissa Goodwin is a writer and the creator of Frugal and Thriving who has a passion for living frugally and encouraging people to thrive on any budget. The blog is nine years old and is almost like her eldest baby. Prior to being a blogger and mum (but not a mummy blogger), she worked as an accountant doing other people’s budgets, books and tax.