How to Be Resilient in Your Finances
Adversity — whether you like it or, is a just part of life. To remind us of that, look no further than the COVID-19 pandemic that impacted every...
Adversity — whether you like it or, is a just part of life. To remind us of that, look no further than the COVID-19 pandemic that impacted every facet of our lives. In particular, it had a disastrous effect on our finances.
According to the Financial Finesse Think Tank, the COVID-19 pandemic has adversely affected virtually every person’s financial health. As a consequence, this has lead to an increase in stress. And, it’s also decreased financial wellness across the world.
Suffice to say, we need to look after our finances. And at the same time, our attitude toward money in general.
How can this be accomplished? Through resilience.
This isn’t a recent phenomenon. It’s actually a concept that psychologist Karen Reivich has been exploring for close to two decades. In fact, she co-authored the book The Resilience Factor back in 2002.
Having resilience simply means being able to recover and grow from adversity. According to Reivich’s research, cultivating resilience helps overcome obstacles in your life. It also allows you to live a more fulfilled and happy life.
Moreover, you don’t have to be born with resilience.
“Some people are more naturally resilient, it’s true,” she told Today. “But what our research shows is that almost anyone can increase their resilience by learning a set of skills.”
How can you learn to be resilient in your finances? Listed below are some strategies that you can try if you want to improve your financial life.
1. Remember your ABCs.
ABCs pertain to the mental connection between the following experiences;
- The set of Beliefs surrounding that adversity,
- The emotional and behavioral Consequences of those beliefs.
By challenging your beliefs regarding specific adversities, you can adjust how you feel and behave when facing them. In turn, this leads to better decision-making, as well as outcomes.
To assist you, use the following practical strategies. They should be able to help you successfully challenge the beliefs about any adversity that’s in your way.
- Challenge your beliefs using evidence.
- Look at a situation from a different perspective. As an example, saying, “A more helpful way of looking at this is”…
- Have a backup plan, such as “If X happens, then I’ll try Y.”
You can use the ABCs to increase your financial literacy and improve your budgeting. For example, admitting that you aren’t financially literate. Being honest about this encourages you to learn. Or using a budgeting app if you have difficulty sticking to a budget.
2. Cut out unnecessary expenses.
Even when things are calm, reviewing your monthly expenses, it’s always a good habit to develop. And, you can start by asking;
- Which subscriptions do you no longer use?
- Would you consider cutting back on unnecessary luxuries?
- Can you substitute less extravagant or generic alternatives?
After you’ve trimmed the fat, evaluate your utility providers. You want to determine if you could save money. For example, when your contracts auto-renew, you might pay more without realizing it.
To find out what deals you’re eligible for, always contact your existing supplier first. Next, shop around for these to compare and contrast. If you do this frequently, you can save quite a bit of money.
3. Engage in self-reflection.
“Reflect on your experience with money in the past and present,” suggests Cady North, CFP®, RLP®, by asking;
- 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,”
We may end up defaulting to one of many familiar coping mechanisms if we do not do deep inner work such as this, such as avoidance, spending too much (or too little), anger, sadness, victimizing ourselves, or accumulating excess wealth, says North.
4. Maintain an emergency fund.
In a perfect world, you would have money stashed away in an emergency fund. This helps cover any unexpected expenses like job loss, home repairs, or medical emergencies. In fact, according to a survey by TIAA, 35% of Americans said having a larger emergency made them feel more financially secure — 16% said it was the most important factor.
How much do you need in your emergency fund? It’s often recommended that you have anywhere from 5 months to 12 months’ worth of expenses saved. But, even having $1,000 can make a world of difference.
If you don’t have an emergency fund yet, open a separate no-fee, interest-paying bank account. Next, set up a direct deposit from your paycheck. And, finally, deposit whatever you can afford — even if it’s just $50 a month.
5. Have a guaranteed lifetime income for retirement.
The second-best contributor to financial resiliency, according to survey respondents, is guaranteed lifetime income at retirement, notes TIAA. A majority (9 out of 10) of respondents believe that it’s vital to have a source of income that won’t become depleted. For example, in the COVID-19 pandemic, 7-in-10 of those with guaranteed lifetime income felt more able to cope financially since they knew they would have a retirement income.
In addition, people with guaranteed lifetime income are also more likely to feel positive about their finances looking ahead over the next year. Specifically, 64 percent cite an emotion such as optimism, calmness, or content, compared to just 51 percent of those without such a source of income.
Your best bet when it comes to a guaranteed lifetime retirement income? An annuity.
Some workplace plans offer an annuity. If you’re fortunate to have such an option, place a portion of your 401(k) contribution into the annuity. However, that’s usually not the case. For most of us, we’ll have to purchase an annuity on our own. One option worth considering is Due’s Fixed Annuity that guarantees 3% on every dollar you have deposited.
6. Make yourself more marketable.
Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management, suggests that you should constantly learn new skills since the job market is always changing. “Today, you might have an occupation that’s prominent, but then it gets marginalized overnight.”
To improve your skills, Johnsons says to keep this Albert Einstein quote in mind: “Life is like riding a bicycle: To maintain balance, you must keep moving.”
To increase your marketability, you can take courses online that are affordable. “You can spend $500, $1,000, $1,500 and get a certificate, and create a whole new skill set,” Johnson says. “That way, you reinvent yourself without a big capital outlay.”
7. Strengthen relationships and social networks.
“A healthy relationship with other people and active participation in your community is essential for resilience,” writes Melissa Goodwin, creator of Frugal and Thriving.
“Financial resilience is more than just money in the bank,” adds Goodwin. Isolating yourself is not only detrimental to resilience-building; it is also a myth. After all, we humans are ‘herd animals.’
“We’re tribal,” she says. “We are more successful and achieve more when working together, not alone. Civilization wouldn’t be possible if this weren’t so.”
Despite this, how often do we neglect our friendships, families, and communities in order to pursue our dreams?
In addition to making a happier, healthier life, strong relationships can also provide support during 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),” Goodwin states. “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.”
Obviously, this is true both ways. Your family and friends can count on you to help them in their time of need as well.
“An individual is only as strong as the community in which we live.”
8. Look for a new revenue stream.
To build financial resilience, one of the best approaches is to create multiple sources of income. That means your 9-5 will be your primary source of income. But, even if it’s modest, another source of income can be used to pay down debt or put into a savings account.
Examples could be piking-up a second job on the weekend, turning a hobby into a money-making activity, freelancing, or investing in everything from stocks to real estate.
9. Purchase adequate insurance.
I get it. This isn’t the most exciting topic. But, life insurance will protect your family if you cannot earn an income, like losing your job. Also, disability insurance will provide a continued income during a period of illness or accident.
10 All debt is not created equal.
By all means, pay down your debt as soon as possible. But, at the same time, you also need to realize that not all debt is bad. For instance, a long-term debt like a mortgage can help you accumulate wealth.
11. Be realistic.
As Dr. Al Siebert writes in his book, “The Resiliency Advantage,” being resilient is a matter of asking yourself: Does this mean I should be worried? For example, if your money is in a 401(k) or an IRA, and every time you check your balance, it keeps dropping, you might get agitated. While you could make a withdraw, that means you could miss out on some excellent returns once the market bounces back.
You cannot always win with your money, so you need to be able to deal with the ups and downs of the market. So do something fun instead to get your mind off your money. For example, stop reading watching CNBC and go for a walk.
12. Improve your emotional resilience.
It’s impossible to underestimate the importance of money during crises, such as pandemics and recessions. After all, you need money to cover the essentials like rent or food. But, at the same time, your bank account won’t matter much if you aren’t taking care of yourself.
Put some of your hard-earned money towards your health and wellbeing. Some ideas would be a gym membership, a gratitude journal, books, calming apps, or ingredients for preparing your favorite meal.
Final words of advice.
Being financially resilient is not just a short-term goal. It’s a daily habit. As a result, you’re more likely to weather any storm if you begin exhibiting these behaviors as early as possible.
Go ahead, do the politician applause (pat yourself on the back) if you are doing well so far. But despite your good progress — don’t get complacent. Financial stress is an inevitable part of life. To deal with it, you just have to be prepared for when it happens.