No one wants to live through the bad stuff. We all long for a sense of security; to live comfortable 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, instead we pray for forever calm and easy sailing.
Unfortunately, life is rarely easy sailing. And it’s in our best interest to prepare now for the storms (literally and metaphorically) 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 help 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 are able to withstand and bounce back after a financial set-back.
1. strengthen relationships and social networks
One of the most vital parts of life is our relationship with other people and the role we play in our community. And yet this is one area of our lives we often neglect the most.
Strong relationships with family, friends and the wider community not only make for a happier, healthier life, they can provide support in times of crisis.
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 advice. 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.
2. Reduce and eliminate debt
Owning your own assets outright 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 your savings and income on meeting present and future expenses rather than have to keep 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
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.
It goes without saying that 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 whilst paying off your mortgage at the same time.
4. Insure your assets
Adequate insurance helps protect your financial security in the event that 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.
Next week I’ll cover calculating home and contents insurance to help avoid under-insurance.
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, 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.
That means continuous learning, both formal and informal. It means developing skills that can be turned into income.
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
Frugal habits will help you reduce debt and build an emergency fund, but they will also leave you in good stead should you fall on hard times.
You will be better prepared if you develop frugal skills now than if you’re trying 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 of your own 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 during times of financial hardship.
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. Either way, you’re letting yourself be a victim.
Or you can take measures to prepare against future uncertainty and then rest assured that should you fall on hard times, 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?