The Oxford English Dictionary defines resilience as “the capacity to recover quickly from difficulties; toughness.” During uncertain times like these we all can stand to build more resilience in our lives and our finances. I know many are wrestling with job insecurity, salary cuts, and we’re all certainly juggling more at home than we ever have in the past. This topic has become so ubiquitous in my work that I decided to write a book about it, called The Resiliency Effect. I am also launching a course this fall diving into detail about building resilience into many areas of your financial life. Here are four specific ways you can work to build financial resilience.
Start with Self Reflection
Reflect on your experience with money in the past and present. What has been pleasant? Scary? Painful? Where do I avoid money?
What are some of your best and worst financial moves?
The more we explore and process old memories on this topic, the more we will be able to emotionally regulate when something uncomfortable comes up.
As you raise more conscious awareness in your brain about how experiences you’ve had in the past may be impacting you in the present, you have a choice to take back control and to do something different.
Without doing deep inner work such as this we may end up defaulting to one of many familiar coping mechanisms like avoidance, over (or under) spending, anger, sadness, victim mindset, under earning, or seeking to over function or overachieve in other areas of our life.
Seek Information Outside Yourself
You don’t have to do this alone. One way to expand your financial knowledge is to break it up into smaller actionable steps. Borrowing from the Pomodoro technique: set a timer for 20 minutes once per week and tackle one thing you’d like to learn.
For instance, research retirement account options, search for a book on personal finance, change you beneficiaries, or review your insurance policies. Learn some key terminology about investing, ask your HR professional for more background information about your benefits options.
Or search for an article to tell you how to do any of the above first.
You can also reach out to fee only financial advisor they can help you with an entire array of financial needs and concerns. Don’t think of them as “just for investments.” It’s ok to ask for help.
The more knowledge we build, the more confidence and conviction we will have with our choices. Just remember, you don’t have to learn it all overnight!
Build in Financial Buffers
Many people get caught up in a cycle of reactivity with their finances. We tend to view everything that comes up as “unforeseen” or “unexpected.” Yet just because we may not be able to predict the month or year that something unforeseen might come up doesn’t mean that we won’t experience unexpected expenses from time to time. The question is not if, but when we will experience such surprises.
It’s best to plan ahead knowing that those expenses will come up so that you’re ready when they do. Think about all the unforeseen expenses you had in the last year — whether it was the insurance renewal you forgot about, someone in your family accidentally chipping a tooth, a computer going on the fritz or a car repair issue, emergencies happen.
It’s a good idea to have a financial buffer of cash in place to draw on when these things arise. It’s hard to know when and exactly how much you’ll need for each unexpected issue, but there is a good rule of thumb for emergencies.
You should keep between three to six months worth of our base level expenses (think the thinks you’d still plan to pay for you temporarily lost your job). These base level expenses are things like rent/mortgage, grocery budget, transportation funds, childcare, etc.
$1,000 or $2,000 probably won’t cut it for an emergency fund. The amount you need is going to depend on your income, but more-so on your fixed expenses. To start this analysis, take a look at your expenses for one month and multiply the total by 3 — that’s the minimum amount you might need for a financial buffer. If you have dependents, an older home, a risky or insecure job, you will probably want to multiply your expenses by 6 (or perhaps more depending on your situation).
I typically recommend that your emergency fund is a separate high-yield online savings account. But you can also keep think of your checking account as part of your financial buffer too — if you keep a few extra thousand in your checking account over what your typical monthly expenses are that can be your first line of defense against smaller unexpected expenses.
Another great way to build financial resilience is to think about your dreams and goals. Explore what you want to accomplish in the short term, and what you’d like to achieve in the long-term. How have your goals changed over time? How does money play a role in what you’d like to achieve?
Feel like you need more support? I’m launching a course in fall 2021 to help you build financial resiliency. Click here to be the first in line.
How will life changes or experiences change our outlook or your plan?
The more you can do to explore your options and plan ahead, the more prepared you’ll be to either achieve your goal or adjust course as circumstances change.
When you’re organized and focused with a plan you’re more likely to achieve all the things you want no matter what life throws at you. That’s what resilience is all about.
Hopefully some of these tips for building your financial resilience resonate with you.
I wrote a book all about resilience. It’s called The Resiliency Effect: How To Own Your Adversity to Act on Your Biggest Dreams. While it’s not solely personal finance related, it also draws on the fields of life coaching and psychology. The book offers a way to develop excitement and energy around your purpose. It includes actionable advice and exercises, as well as chapters dedicated to realizing common dreams such as how to change careers, take a sabbatical, or start a business.
I hope you’re able to check it out!