It’s fair to say that the majority of people know how to be resilient when it comes to health and wellness: follow a balanced diet, manage stress as well as exercise regularly. But, what does it mean to be financially resilient?
It’s possible that even if you have an adequate income and stick to a budget, you can be financially unsettled should an unexpected expense occur.
In basic terms, financial resiliency is typically your ability to stabilize after being thrown a curveball that affects your income and/or assets. While you may not be able to control the events, it’s possible to control how prepared you are should this happen to you.
Here are six key areas that can help you become more financially resilient. It may be a good idea to speak to an independent financial adviser (IFA) to help you along your path.
Tips to Become More Financially Resilient
Build up an emergency fund
Life may not work out as planned. Personal circumstances can change for the worse and potentially diminish your finances.
This is why it may be a good idea to build up an emergency fund. Think of it as a safety net to protect you against unforeseen events that are not covered by a financial product such as insurance or medical aid.
It’s generally suggested that you aim to save at least three months’ worth of income and keep it in an easy-to-access, low-risk investment such as a money market fund. You can potentially earn a better return than if you were to put the money in a current bank account.
Make sure you’re adequately insured
Should a serious situation occur, such as a disability that prevents you from earning an income, or one of your loved ones passes away, it’s best to consider an insurance product from an investment services company instead of relying on your emergency fund.
Available products include
- An income protection policy
- Critical illness or dread disease cover
- A funeral policy
- Life insurance
- Car and household insurance
Speak to an independent financial adviser (IFA) for more information about these products.
Join a medical aid and take out gap cover
Medical procedures can be expensive; it may be in your best interests to join a medical aid or at least contribute to a hospital plan via a medical aid.
However, it’s possible that there may be a substantial shortfall between the charges of a medical provider and the coverage of medical aid. It’s recommended to take out gap cover which can make up for the difference.
Manage your debt
If you’re not financially resilient, you may have to take on debt to pay for an unexpected expense. Should this be the case, it’s important that you consider adjusting your budget so that you don’t default on payments.
This can affect your credit rating. A bad credit rating can make it difficult for you to borrow money in the future.
Don’t let your retirement savings plan fall by the wayside
It’s generally understood that saving for retirement should be a priority. But if you have to stop contributing due to a hefty expense, it may not be the end of the world.
Make sure that when you’re back on your feet, try and prioritize retirement contributions to increase resiliency.
Read also: How This Couple Saved Enough to Retire in Their 30s
Plan for long-term expenses that may have a significant impact on your budget
If you have children, relying on your salary to pay for school and/or university fees can affect your budget. Think about taking out investment products such as education policies, endowments, tax-free investments or unit trusts.
It should be noted that financial resilience requires diligence. Anyone can become resilient by reassessing his/her habits as well as adopting a holistic approach. So, make a commitment and take it one step at a time.