Building Financial Resilience Can Help You Ride Out Tough Times
Financial shocks can occur unexpectedly and can have a significant impact on our lives. Whether it’s a surprise medical bill, home repairs, or a job loss, these financial challenges can be difficult to navigate. That’s why it’s crucial to build financial resilience as a safety net to help you weather tough times.
Emerson Sprick, associate director of economic policy at the Bipartisan Policy Center, defines financial resilience as being prepared to encounter unexpected financial shocks. He emphasizes that while these shocks may be unpredictable in timing, they are a natural part of life.
To improve your financial resilience, there are several steps you can take. First, it’s essential to lock down your cash flow. Troy Anthony Anderson, a financial education expert, suggests tracking your expenses to identify areas where you can cut back. By planning your expenses for the month and avoiding overspending each time you receive your paycheck, you can better manage your finances.
Creating a savings reserve is another crucial aspect of financial resilience. While it may be challenging to build up the recommended three to six months’ worth of expenses, even having some savings can provide a safety net during difficult times. Kate Bulger, VP of Business Development at Money Management International, emphasizes the importance of savings and suggests keeping them in a high-yield savings account for potential growth.
Contributing to retirement savings can also play a role in long-term financial resilience. Sprick advises utilizing employer matches and tax-advantaged accounts like 401(k)s to build up savings over time. Even small contributions each pay period can accumulate significantly, especially when compounded.
Maintaining a good credit score is another essential aspect of financial resilience. By keeping credit card balances low, you can preserve your credit lines for emergencies. Bulger suggests using credit cards as a tool for short-term financial challenges while paying off the balance quickly to minimize interest charges.
Discussing financial priorities with your family can help you prepare for unexpected financial shocks. By identifying what’s most important to you and your shared goals, you can make informed decisions about cutting expenses if necessary. These conversations can also provide emotional support during challenging times.
In times of financial strain, it’s essential to lean on your community for support. Bulger points out that communities often have resources, such as food banks and government programs, that can help individuals facing difficult periods. Nonprofit financial counselors and online budgeting resources can also provide guidance and support during times of financial change.
Finally, it’s crucial to stay focused on the long term rather than getting caught up in immediate setbacks. Daniel Milan, managing partner at Cornerstone Financial Services, advises looking beyond short-term challenges and focusing on a long-term plan. By maintaining perspective and staying committed to your financial goals, you can navigate tough times with confidence.
Building financial resilience takes time and effort, but it can provide a safety net during unexpected challenges. By managing your cash flow, creating a savings reserve, maintaining good credit, having open discussions about financial priorities, and utilizing community resources, you can strengthen your financial resilience and be better prepared for whatever comes your way.
This article was written by NerdWallet and was originally published by The Associated Press.
