Building Financial Resilience
Mike graduated from campus, landed a great job with one of the big 4 accounting firms without much effort. Within a few years, he was the expert that every client wanted to work with. This caused many around him to begin to be resentful. They grew green with envy; the work environment became toxic and he quit. He then got married, and within a few years, had 5 kids. For about ten years, he cruised along and one day, he landed a sweet opportunity that glittered so bright, he signed up. It was a con…. 80% of his life savings were wiped out! Mike’s oldest was awarded a scholarship in a prestigious ivy league university and he could not have been more proud. Mike then lost his third-born son to a rock climbing accident and it crushed him totally. As he slowly recovered from grief, he landed a few business opportunities that enabled him to recover financially. He is now supporting his last 3 kids through university and looking after his aging parents.
Life is about transitions. We’re constantly moving from one state of being to another. You may be cruising through life right now and things have never been better! That’s so awesome! However, there’s one thing that I’m learning, change is constant, and nothing stays the same. We are constantly transitioning from one state to another. In this time of transition, you can feel like you are in a season of nothingness… somewhat of a wilderness. Everyone else around you may seem to be forging ahead, progressing, and succeeding, but you feel stuck… in a zone that you can’t explain – lacking clarity, feeling confused, disappointed, frustrated, and overwhelmed.
As I write this, more than 1 million Kenyans are reported to have either lost jobs or gone on unpaid leave in the last 30 months, 69% of adult Kenyans have experienced reduced income and there has generally been reduced job opportunities. In addition to this, the Horn of Africa is experiencing its worst drought in 40 years, with an estimated 4 million Kenyans facing extreme hunger! It has been tough.
The fact is that all through the different seasons of our lives, we encounter setbacks. These setbacks are in relationships, in business, in career, health and so on. While these setbacks can sometimes be extremely challenging to go through, we can certainly bounce back.
Napoleon Hill, Author of the book Think and Grow Rich is quoted to have said “Every adversity, every failure, every heartache, carries with it the seed of an equivalent or greater benefit” This means that in every setback, there is a seed of opportunity that we can find, that if natured can potentially become of great benefit.
The difficulties we have faced from a financial perspective have given us an opportunity to stop and rethink our choices and our commitments. The big opportunity we have is to build financial resilience. To make radical decisions where our spending habits are concerned without worrying about what people will think and take steps towards creating reserves and investing for a financially secure future.
Financial resilience is our ability to recover from setbacks, adapt well to change, and to keep going in the face of adversity.
Here are a few things you can begin to do in order to build financial resilience:
- Trauma can be paralyzing; seek help
Trauma from childhood around finances, life trauma, financial loss, and so on can cause you to be paralyzed or to become illogical in the way that you process, live and interact with the world.
For example, you may be asking yourself, am I lazy? I used to be so driven but now I can’t get up in the morning. I’m struggling to keep a job, no motivation, low energy, no vision, difficulty seeing one year from now. Or perhaps you are unable to control your spending despite being in debt. You continue to dig a hole, paying rent you can’t afford, buying expensive things and experiences. This could also be tied to trauma and I encourage you to consider speaking with someone. A counselor.
- Begin with a goal
Everything begins with a goal, a plan and specific steps to achieve those goals. Thinking about what you want from life is critical, especially where finances are concerned. When you have specific goals written down that are meaningful to you, they give you the motivation, tenacity, and discipline to remain committed to saving, investing and seeking to grow your knowledge, and to find opportunities.
Where you start your journey has nothing to do with where you end up. No matter where you are right now and what your circumstances are, they have nothing to do with the future you could have. You can succeed regardless of your present situation. You just need the right attitude and commitment to that financial dream, no matter what it looks like.
- Cut expenses wherever you can
To know where to cut back, begin by tracking your expenses carefully. It may be dietary changes, moving house or negotiating rent, cutting out expensive holidays, and so on. An example of a “small” expense we don’t pay much attention to is subscriptions, such as Audible, iTunes, entertainment websites, educational platforms like Masterclass, and many more. Cut out subscriptions that are not essential.
- Save, save, save, and then invest
Worrying about money is debilitating. It affects your health, and the ability to think effectively. When you begin to save, it has a huge impact on your general wellness as it results in a sense of peace. A great way to save is to automate the process of saving so that you don’t have to think about it each time an income comes in. Automate by setting a standing order from your bank account to a savings product such as a Money Market Fund.
As you retain a percentage of your monthly income, when investment opportunities come your way, you will be in a position to take advantage of them, propelling you to greater heights. The key is not how much you’re able to put away but rather the principle of it.
Your choice of investment must be made by assessing your situation, goals and the options available to you. Invest in only what you understand and are comfortable with. Ensure that it aligns with your goals and circumstances and seek professional help as you make your decision.
- Build an emergency fund
We often make the mistake of not planning for emergencies, but an emergency fund will help you in times of need. It will reduce stress. It will enable you to deal with unexpected situations without significant damage to your financial situation or substantial changes to your lifestyle. Calculate your critical monthly living expenses and begin saving towards 6 months of these expenses. Begin slowly by setting aside a portion of your monthly savings for your emergency fund and you will eventually have it in place.
- Get rid of expensive debt
If you have consumer debt – debt taken to buy goods and services that are not an asset, prioritize paying it off. In particular, credit card debt and mobile loan interest rates are extremely high, with rates at approximately 45% and 100% p.a. respectively. This is much higher than any average investment opportunity. Repay this kind of debt before investing.
- Invest in yourself
Improve or acquire new skills as these may help you with a promotion, your next job, or even a second income. Take time to also build your brand, update your LinkedIn profile and find ways to be visible and build credibility as an authority in your area of expertise.
- Take care of your mental health
Research shows that when people have a positive mind-set, their performance and productivity on nearly every level is raised! Conversely, when one is in a state of stress and constantly worrying, it becomes difficult to make rational decisions when it comes to money.
In order to raise positivity, keep a gratitude journal and write 3 new things you are thankful for, daily. Carry out random acts of kindness, such as an encouraging email or text message to a loved one. Surround yourself with positive and encouraging people and invest in deep meaningful relationships.
- Protect your assets – Insurance
Insurance is important as it restores your financial position to its original state, before you suffered a loss. A critical insurance cover you will need is health insurance, and perhaps income replacement insurance. The insurance policies you need will depend on your circumstances and the level of protection you seek. Read policy documents carefully and understand exactly what you are paying for.
Get insurance covers only from financially strong and stable companies that have a good history of paying out claims. Some policies last 20 years or more, so it is important to ensure your money is in the hands of long-lasting insurance companies.
As you begin or continue your journey to building financial resilience, think for yourself. Make decisions based on your personal circumstances, research and convictions, not simply on what others are doing.
Happy World Financial Planning Day!
If you need help with practically figuring how to go about any of these steps, or finding investment opportunities, reach out to us on [email protected]