Financial resilience is the ability to withstand life events that impact one’s income and/or assets. Some financially stressful events, such as divorce, disability, unemployment, and health problems affect people individually.
Others, such as recessions, stock market downturns, and acts of terrorism, affect society as a whole.
According to Rutgers University "Financial resiliency is enhanced with financial resources, such as savings, investments, health insurance, and a good-paying job. Another resource is one’s human capital".
Economists define human capital as all of the knowledge, skills, experiences, contacts, and other personal qualities that people have to “sell” to potential employers. Personal health is part of human capital because it affects job performance and productivity. Social capital also increases financial resiliency. This includes a support system of family, friends, co-workers, neighbours, and others that can provide financial assistance, not to mention emotional support, during hard times especially in this covid period.
There are some financial practices that can increase financial resiliency and are especially important during a tough economy such as this covid-19 pandemic. Every baby step to achieving this makes a giant leap.
CREATE AN EMERGENCY FUND
Keep this money liquid in cash equivalents such as a bank or credit union savings account, money market fund, or short-term certificate of deposit.
Have emergency buffer that you can always have quick access to. It can vary from equivalent of 6 to 12 months’ salary; however, this all depends on individual circumstances. Money definitely buys freedom so aim to have some in an account that you can access. Try to stick to the buffer number and do not let it fall below the specific number. This buffer amount is not for investing. Inflation might eat into this money but this effect should not be too devastating if you have other ways of saving and investing. An emergency buffer will make you have access to money to cover unforeseen circumstances. Having a buffer will keep your mind at peace.
If you have a high debt-to-income ratio, any type of financial crisis can quickly make things more difficult. Start with your credit card debt (the one with the highest interest rate) and work your way toward eliminating the rest.
DEVELOP MARKETABLE SKILLS AND TAKE CARE OF YOUR HEALTH
Continue to develop new marketable skills and take care of your health (e.g., good nutrition, screening exams, and exercise) to increase your human capital and remain employable in today’s very competitive labor market. If you can, use this pandemic to learn new skills and put in contingency plans for the future.
TRY TO SPEND LESS AND TRACK YOUR SPENDING
Keeping expenses low without sacrificing the quality of life can help you spend less. It is good to spend money on things that give lasting benefits and add value. Do try to keep healthy because ‘health is wealth’. Try to avoid spending more than you earn.
DIVERSIFY YOUR INCOME
You are working today to earn money. In addition to diversifying your investment portfolio, it is also good to diversify your income. Diversifying income means having your income from different streams which can be by selling something online, providing value in exchange for money etc. Generate cash and then invest it in assets such as non-financial and financial assets to build wealth.