In everyday language, resiliency is the ability to carry on despite life’s challenges and setbacks. With everything going on in the world right now, it seems new challenges are arising daily that could impact our lives and money. Energy costs are going up, inflation is leaping, and petrol prices are at highs not seen for years. Coupled with the global unrest, all of this has the potential to impact our pockets. Financial resilience is the ability to withstand all challenging life events that impact your income. It Is being in control of your money, understanding your options, ensuring your money is working hard, and mitigating external risk factors.
These four financial practices can increase financial resiliency and are especially important during a tough economy.
1️⃣ Budgeting:
As surprising as it may sound, budgeting is your financial best friend in this season of rising prices to build up your financial resilience. People think sticking to a budget is scary, a hassle, inconvenient, or that they will have to live like they are poor. But in reality, a budget is just a tool that allows you to tell your money where to go. It gives you awareness of what you are spending; it ensures you are living within your means. Whether on an app, a piece of paper, or an excel spreadsheet, you can easily do your budget by setting up three columns: essentials, non-essentials, and luxuries.
2️⃣ Emergency Savings:
Only a quarter of people around the world have enough money for a month’s cushion. Emergency savings is the financial buffer that will help you recover from financial setbacks as quickly as possible. It is advised to have a financial shield of at least three months to cover everyday expenses. Keep this money liquid in an instant access savings account. emergency savings is not supposed to be an investment. It is an insurance with one purpose: to protect you and your family during a personal finance crisis.
3️⃣ Reduce or Eliminate your Debts:
Some of the biggest hits come from loans or credit cards as well as buy now, pay later schemes. A key part of financial resilience is maintaining a low debt-to-income ratio. To survive life curve balls when it comes to your finances, you must be in control of your debt and not let it control you. Debts are good at snowballing; if you don’t repay them, they become more and more expensive as you start paying interest on interest. Make a plan to pay off your debt. My book on the Four Letter Word Debt gives a step-by-step process to take in getting out of debt and staying out of debt.
4️⃣ Build up your Financial Knowledge:
Increasing your knowledge of financial topics will help you make smart financial decisions and build your financial resilience. By finding out how personal finance works, you can use that knowledge to allocate your income toward various goals simultaneously - not just to ongoing expenses, but to savings, investing, debt repayment, etc. Even if you don't have a lot of disposable income to help you reach all of your financial goals, financial knowledge will help you know how to prioritize them and make strides when you're able to. Knowledge is power!
About Nike
Oyenike Adetoye (aka Nike) is an impactful speaker, author and personal finance expert. A Chartered Management Accountant by profession. Nike is the founder and CEO of LifTED Finance, a private financial firm that educates, coaches and supports people on their journey through financial fitness and wealth management.