For most people, finances are a significant bottleneck in life. Not only can they prevent you from doing something you want, but they can also dictate your daily life and routine. They may make you move, take another job, alter all your habits, and even cause problems you wouldn’t have otherwise.
Sadly, everyone knows that even if your finances are fine now, this could change in a heartbeat. So, how do you protect yourself from this unfortunate occurrence? How do you increase your financial resilience and keep yourself safe? Here are the top five things you should do.
- Have multiple streams of income
Depending on just one source of income makes you very vulnerable. Just run two fictional scenarios in your mind. What if you lose a job that makes 100% of your monthly income? What if you lose one of your two jobs, each of which makes up roughly 50%?
Are you in trouble in both of these scenarios? Of course!
Are you in the same sort of trouble? Not even remotely!
The modern gig economy trend, remote work, and freelance make this incredibly easy. You can find additional work to fit your busy schedule and coordinate it with your other responsibilities.
Another thing to remember is that the job market (in a traditional sense) is also recovering quite nicely. This means that even if you want to find a second job the old-fashioned way, this is much easier to do than before.
Just try not to get yourself overworked. After all, you only have so much energy and focus throughout the day. This means there’s a limit to how much extra work you can take before it’s too much. Also, remember that being stretched too thin may ruin your odds of building a career.
While creating multiple income streams is a great plan, it’s not easy to accomplish.
- Invest
What do we mean by investing and creating passive income? This is a way to make money without actively working for it, and it increases your resilience in many ways.
First, there are a lot of things that could happen which would make you unable to keep working. An accident or a chance in life circumstances, sometimes even massive geopolitical occurrences (like wars, pandemics, and natural disasters – all of which have happened in our recent memory). Well, investments don’t rely on any compensation pay or your ability to put time into it actively.
All you need to do is choose among the best investment platforms in the UK, set aside your investment fund, and there you have it.
Now, while an investment carries a certain level of risk, if you learn how to diversify correctly, this shouldn’t be too much of an issue. Just split your investments across several different asset types (ideally with low or no correlation between them).
For instance, stocks, precious metals, and cryptocurrencies all have quite low correlation, which is why it’s unlikely that they’ll all be on a downward trajectory simultaneously. This way, you get to increase your financial resilience and ensure that at least a part of your funds will always be safe.
- Create passive income
Previously, we’ve mentioned that you can only work for so many hours in a day, but what if you don’t take this route and focus on creating a passive income instead?
- You can buy a property and collect rent.
- Invest in stock and collect dividends.
- Buy equipment to rent out.
There are many other ways to create a passive income, but one thing is true – they generate money without active involvement on your end. This means that even if you get too busy, injured, or indisposed in any other way, you still get to collect your income.
The problem is that some assets, like rental properties, may require a lot of work. Sure, you can hire a property manager, but with one or two properties, this might not be a viable solution.
Also, to create a passive income, you need some initial capital, which is not easy. You also need to figure out how cost-effective your investment is. For instance, a rental residential property should return 1% monthly, while a commercial property should return 4-5% yearly.
The bottom line is that, down the line, you want something like this either way. So, even if you can’t afford this now, start researching and making investment plans for the future.
- Have an emergency fund
When discussing financial struggles and problems, it’s impossible to skip how these things usually start. It’s usually not a slow, steady decline but a sudden event that rocks your finances to their core.
- A medical emergency
- A car malfunction
- Damage to your house
- Loss of income
Each of these problems, even when small, will seriously hurt someone who’s living from paycheck to paycheck. More likely than not, they’ll get a payday loan to solve the issue, but these loans sometimes have 300-500% APR. Chances are that you’ve struggled with your rent and bills even up until that point, but now, things will get out of hand really quickly.
Instead, you could get an emergency fund. This would help you get a reserve that you can draw some additional money from whenever you need it.
So, how much money do you need?
Well, according to a general consensus, you need three to nine months of living expenses.
So, how do you get that much money for your emergency fund? One of the simplest ways is to gamify your saving efforts. For instance, putting money in a jar whenever you say or do something. There’s also a 52-week savings challenge, where you put a set amount of money on the first week of the year, then put that amount plus $1 more every next week. Even if you start with $1, you can save over $1,350 a year.
- Live slightly below your means
Is this an easy thing to do? Absolutely not! However, everything valuable in life has a price, including financial resilience and independence. You can’t live a lavish lifestyle and have your finances in order. If you could, you would probably be a multi-millionaire, meaning you wouldn’t even click on the article with this title.
The best way to achieve a higher level of financial stability is to find a lifestyle that suits you and, as you grow older, advance in your career and get more income, not change your lifestyle by that much. The worst thing you can do is get a new car or apartment and adopt a new hobby every time you get a raise.
To make it as simple as possible – you can never outearn a bad spending habit.
Expecting to do so would be like expecting to lose weight without effort – it’s just not going to happen.
In other words, you need to exercise discipline and understand that you’re not really sacrificing that much if you skip that one coffee out. Ideally, you would have a massive life goal (getting married, owning your own home/car, etc.) to keep you motivated. This way, it will all be so much easier.
Improving your financial resilience should be a priority
Many people are too obsessed with what they don’t have, which makes them completely ignorant of what they do have in life. Things could change for the worse, as well, and unless you’re aware of that, you’ll be caught with your pants down when this finally happens. Now, you at least know how to avoid this scenario.
