5 Ways to Boost Your Financial Resilience

By Denise Hill on 20 March 2018 0 comments

The ability to bounce back after being financially sucker punched is a necessity in today's volatile financial climate. It's safe to say that at some point in your life, you are going to face a financial crisis. It could come in the form of a job loss, an unexpected pregnancy, a health crisis, divorce, death of a loved one, identity theft, a global recession, the stock market tanking, an act of God … you get the picture. And the most troublesome thing about a financial crisis is it is usually unexpected and beyond your control.

The ability to survive and recover from a significant financial setback depends on how well you are prepared before disaster strikes and how flexible and proactive you are during and after the event. While you can't predict, control, or prevent financial catastrophes, there are a few things you can do to increase your financial resilience.

1. Prepare

According to a 2017 report by GoBankingRates, 39 percent of the 8,000 Americans surveyed had zero savings — and 57 percent had less than $1,000 set aside. That means nearly two-thirds of the people surveyed could not withstand a significant financial setback.

Your ability to rebound after a major money event is directly proportionate to your financial health before the event occurs. If you have little or no money saved, have lots of debt, and fail to live by a budget, you significantly extend your recovery time.

All of the standard financial best practices — budgeting, establishing an emergency fund, keeping your debt-to-income ratio low, and living below your means — increase your financial resilience. Financial irresponsibility is costly, both now and long-term. Start working now to improve your financial situation. Establish a solid emergency fund, lower your cost of living, and pay off as much debt as possible. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

2. Practice

In the world of competitive sports, practice is important for three reasons. First, it prepares you for competition. Second, it creates muscle memory and habits. And third, it predicts future performance. In other words, you perform how you practice. This same thinking should be applied to your finances.

How does one practice for a financially stressful event, you ask? The first thing is always, always, always live by a budget. Budgeting gives you the power to see and decide where your money goes. You should make it a habit to establish a system of budgeting and tracking every dollar you receive and spend. It establishes a habit of being financially proactive which is pivotal in a crisis.

Another way to practice for a financial surprise is by running regular "practice drills." A few times a year my husband and I engage in what Michelle Singletary, nationally syndicated columnist for The Washington Post, calls a financial fast. During our fasts, we cut out all unnecessary spending and only buy the absolute necessities for a short period of time (about a month). We tighten our belts and live as frugally as possible. We usually wind up saving an extra $200–$400 on top of what we already save. It allows us to see the areas where we can cut back and it keeps us in the habit of adjusting our spending and living on less. (See also: Here's How a Spending Ban Can Help (and Hurt) You)

3. Don't panic

When a financial storm does arise, don't panic. The worst thing you can do is to act prematurely and while under duress. When you are stressed and scared, you are not only more susceptible to making poor decisions, but you are also vulnerable to financial predators. Scammers, con-artists, and unscrupulous lenders feed on your fear and can turn a bad situation into a disaster.

It's important to assess your situation and explore all of the possible solutions before deciding on a course of action. Seek sound, objective financial advice. Don't overcorrect and make the situation worse by prematurely borrowing money from your IRA or taking out a second mortgage. There may be less costly options available to you.

And don't be afraid of unconventional solutions. There may be smaller things you can do to keep you from having to make drastic and more costly decisions. Consider things like adjusting your insurance coverage and deductibles, adjusting your tax withholdings, or even selling your car. The important thing is to stop, breathe, and remain open to considering a multitude of possibilities before you act. (See also: How to Protect Yourself From Predatory Lending)

4. Prioritize

Establishing your financial priorities before a disaster occurs is so important. You should always plan to cover your basic needs: food, housing, transportation, etc. If you are unable to afford the basics, look for programs that aid with these things such as a food bank, rent/mortgage assistance, and public transportation. Keeping yourself and your family alive, safe, healthy, and functional must be your top priority.

From there, begin to make a list of the order in which you will pay and skip bills. Yes, you read that correctly. In a time of crisis, some things may have to go unpaid for a time. It's important that you prioritize and pay the things that need to be paid in lieu of randomly paying things as they become due. Opting to pay your store credit cards and cable bill and foregoing the mortgage or rent is a bad idea, but is an easy mistake to make when you don't have a plan. (See also: Pay These 6 Bills First When Money Is Tight)

Lastly, make a list of the order in which you will do things (exhaust the emergency fund, sell the car, get a second job, begin skipping bills, etc.). Having a plan helps ward off panic; it helps you make sound decisions and ensures that you can make the right adjustments as the situation changes. Make sure you run your plan by someone astute in money management who will help you make the best decisions for your circumstances. (See also: 4 Times Raiding Your Retirement Accounts Early Is Okay)

5. Be proactive

The most important thing to do before and during a financial problem is to be proactive. It sounds like basic advice, but being assertive and mustering up the strength to act is difficult during a crisis. Most major events bring with them a grieving process. Trying to be strategic — heck, just trying to function — during a difficult time isn't easy. You've got to acknowledge and accept that the crisis is real and begin damage control as you cope with your grief.

Being proactive early in the process allows you to chart a course of action. You can contact creditors and arrange to pay late or make partial payments and find out what other courses of action are available. You should begin the proactive process by revising your budget to reflect the loss of income or new expenses and stop any unnecessary spending immediately.

After you've prepared your financial ship for battle, start looking for solutions specific to your situation. Make sure you understand your insurance policies, file for unemployment or disability benefits, research treatment options and alternatives, and get a second opinion. It is also a good idea, especially when dealing with tax and/or legal issues, to consult a professional. Arm yourself with as much information as possible before you act and be sure you weigh the benefits of each decision. Remember the key here is to survive the storm and live to fight another day. (See also: What to Expect After These 5 Personal Financial Disasters)

Like this article? Pin it!

5 Ways to Boost Your Financial Resilience

5
Average: 5 (2 votes)
Your rating: None
ShareThis

Disclaimer: The links and mentions on this site may be affiliate links. But they do not affect the actual opinions and recommendations of the authors.

Wise Bread is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.