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Building Financial Resilience

Resilience is the ability to quickly recover from setbacks. While setbacks can come in many forms, most of them will have a financial component. So what can you do now, to build financial resilience?

๐„๐ฑ๐ฉ๐ž๐œ๐ญ ๐ญ๐ก๐ž ๐ฎ๐ง๐ž๐ฑ๐ฉ๐ž๐œ๐ญ๐ž๐

Rarely do we get any advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now. And while we donโ€™t know the specifics, we can anticipate events that could potentially throw our finances into disarray. A house burning down, a car being stolen, redundancy, not being able to work due to illness or injury. The death of a breadwinner or caregiver. Itโ€™s not nice to think about, but unfortunately, these things happen to people every day, so we need to be aware of them.

By having some idea of the type of threats we face, we can be in a position to insure against some of them. If you have taken out any type of insurance policy youโ€™ve already made a start on your resilience plan.

๐‚๐ซ๐ž๐š๐ญ๐ž ๐Ÿ๐ข๐ง๐š๐ง๐œ๐ข๐š๐ฅ ๐›๐ฎ๐Ÿ๐Ÿ๐ž๐ซ๐ฌ

You canโ€™t insure against every possibility, but you can build financial buffers and safety nets. This might simply be a savings account (or offset account) that you earmark as the emergency fund that you contribute to each payday. If your home loan offers a redraw facility (instead of an offset account) you can also create a buffer by getting ahead on your mortgage repayments, as long as redrawing is a simple and quick process. Important to check with your lender on that one.

Buffers can be particularly important for retirees drawing a pension from their super fund. Each year, pension payments can โ€˜resetโ€™ and there may be a few days of late pension payments. So itโ€™s best to have enough cash to avoid being impacted by any late pension payments.

๐‚๐ฎ๐ญ ๐œ๐จ๐ฌ๐ญ๐ฌ

The Internet abounds with tips on how to cut costs and save money. In difficult economic times, cost-cutting can help you maintain your financial buffers and important insurances.

The key to cost-cutting is tracking your income and expenditure, which means making a budget. Find the right budgeting app for you, and this chore could actually be fun. Or, often the simplest way is the best, just through a tracking spreadsheet. There is no right or wrong way, itโ€™s whatever way you find easy and simple. That is the key to budgeting.

๐ˆ๐ง๐ฏ๐ž๐ฌ๐ญ ๐ข๐ง ๐ช๐ฎ๐š๐ฅ๐ข๐ญ๐ฒ, & ๐๐ข๐ฏ๐ž๐ซ๐ฌ๐ข๐Ÿ๐ฒ

There are many companies out there that have long track records of consistently delivering a strong track record of profits and dividends. They may not be as exciting (i.e. volatile) as the latest technology fad shares, but when markets get the jitters these blue-chip companies are more likely to maintain their value than the newcomers.

The other key tool in creating resilient portfolios is diversification. Buying a range of investments both within and across the major asset classes is a fundamental strategy for managing portfolio volatility.

๐“๐š๐ค๐ž๐š๐๐ฏ๐ข๐œ๐ž

Building financial resilience can be a complicated process, requiring an understanding of a range of potential risks that need to be balanced against one another and prioritised. Your financial planner is ideally placed to assist you in developing your own, personalised plan for financial resilience.