Five Ways To Build Financial Resilience

The last few years have tested us in a lot of aspects including our financial resilience and it’s affect on our mental and emotional wellbeing. And with the cost of living rising so rapidly it’s still a bit of a pain point for a lot of Brits.

During the pandemic the Financial Conduct Authority conducted research that found that 14.2 million people in the UK considered themselves to have low financial resilience. This lack of financial resilience lead people to feel stressed or anxious as a result.

But what is financial resilience?

Financial resilience is the ability to get through life events that impact your income and/or assets. The pandemic was a big one, but it also covers unemployment, divorce, health issues etc.

Having low financial resilience means if you were left unable to work for example you would struggle to survive without your income. This could be because you don’t have any emergency savings, or savings in general.

There are some steps you can take to build your resilience and feel better about your future.

Get to know your money better

Claro research shows that just under 40% of UK households don’t have a budget that helps them balance and track their money coming in and out.

Yes budgets aren’t always fun, but having one will allow you to keep tabs on where your money is going. It will mean that you can make smart choices if things change such as the rising cost of living.

You can begin by looking at all of your fixed expenses set up as direct debits or standing orders. There will be essentials in there like your rent or mortgage, bills you pay monthly, or your internet provider. But is there anything in there you forgot about or really don’t need such as the magazine subscription you never read?!

Then review your spending outside of fixed expenses and start setting up a budget to allow you to have some spending money, but also to allow you to save. Even if you can only save a little at the minute it’s a start.

Build financial resilience with an emergency fund

When you know your money better, where you’re spending it and you have a good budget you’re ready to start building an emergency fund. Kudos to you if you’ve already started one, or have one fully saved.

Work out how much you’d need each month to be able to survive. So include in here your fixed expenses but also a budget for basic food, fuel you may need etc. Once you know how much you’d need to survive times this number by three initially, or six if you’re confident in your savings ability. Then this is your savings goal. Continue saving until you have enough money aside that if you were out of work for six month you’d be able to survive.

Know your net worth

Have a clear idea of your net worth to get a clear picture of your financial health. If you’re not sure on the exact difference between net worth and income I did a whole post on it. Take into account your property, savings and financial assets like shares, pensions you may have and physical belongings with value such as vehicles, jewellery and art.

You may feel happier with your financial resilience when you know your net worth. Perhaps you have limited financial savings but a lot of high value watches that you know you could easily sell to make money if you needed to.

Increase your financial resilience by looking at your mind

How you feel about your money has a massive impact on your mental health.

Money arguments are a high reason cited in divorce, and money worries are common reasons for sleepless nights. If your money worries are giving you sleepless nights it’s important to look after your mind and address the issues before it gets too much.

Communication may help you unload a weight on your mind. Talk to a friend or family member, or perhaps a financial professional if you need advice. It might be as easy as writing down your worries so you can look back and prioritise the most important things.

But take action and look after your own mind and feelings. Even if you’re in no better a financial position, if you just feel better about things it can help your financial resilience.

Increase your investments, pensions etc

A lot of people consider wealth to be when you have a lot of assets such as large investments, or property that you can live off the profits from without needing to work. Having a comfortable level of investments and pensions will help you have greater financial resilience.

If your employed make sure you are taking full advantage of your workplace pension. Especially if you’re employer matches your contributions higher than the minimum 3%. But chances are a lot of us aren’t saving enough. New research reveals that 20% of adults retiring this year are planning on relying on state pension as their main source of income. And that figure is only set to rise further with future generations who can’t afford to save as much as they need to.

Increasing your pension contributions might feel like a pipe dream, but start increasing it slightly. Just by upping your contributions by 2% could make the difference between tens of thousands of pounds by retirement age.

If you’re self employed and haven’t started a pension then head to my post about pension schemes for the self employed.

How is your financial resilience?

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