Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms some of them may have a financial component.
So what can you do to build financial resilience?
Expect the unexpected
Rarely do we get advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now. And while we don't know the specifics, we may sometimes be able to anticipate the events that could throw our finances into disarray such as the death of a spouse or caregiver, increased cost of living, car and house expenses, and even floods and fires. If you are starting to experience financial hardship, or expect that it could be just around the corner, start to make a plan. Do you have insurance cover? Do you have an emergency fund? Are all Wills up to date? Most lenders also offer financial hardship assistance if you're struggling to make loan repayments. Your options may include setting up a payment plan or temporarily altering your loan repayments to help alleviate some of the financial stress.
Create buffers
You can't insure against every possibility, but you can build financial buffers. This might simply be a savings account that you earmark as your emergency fund that you contribute to each payday. If your home loan offers a redraw facility you can also create a buffer by getting ahead on your mortgage repayments.
Buffers can be particularly important for retirees drawing a pension from their super fund. Redeeming growth assets for cash in order to make pension payments during a market downturn can lead to a depletion of capital and reduction in how long the money will last. By maintaining a cash buffer of, say, two year's worth of pension payments, redemptions of growth assets can be deferred, giving time for the market to recover.
Cut costs
In difficult economic times cost cutting can help you maintain your financial buffers and important insurances.
The key to cost cutting is tracking your income and expenditure and that could mean doing a budget. There are a lot of great budgeting apps, or, if a traditional budget is not your style, try 'bucketing' for a simple and effective way to manage your spending and savings.
Check out our blog What is bucketing and how can it help you save?
Invest in quality
If you're an investor, there are many companies out there that have long track records of consistently pumping out profits and dividends. They may not be as exciting (i.e. volatile) as the latest fad stocks, but these blue chip companies are more likely to maintain their value than the newcomers in market.
The other key tool in creating resilient portfolios is diversification. Buying a range of investments both within and across the major asset classes is a fundamental strategy for managing portfolio volatility. With a well-diversified portfolio of quality assets there is less need to regularly buy and sell individual investments.
Take advice
Building financial resilience can be a complicated process requiring an understanding of a range of issues that need to be balanced against one another and prioritised. Chatting to a financial planner can assist you in developing your own, personalised plan for financial resilience. To ensure our customers have access to appropriate financial advice we have formed a relationship with Alliance Wealth. For more information visit us in branch or contact our Customer Care team on 1300 138 831
This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication. Whilst all care has been taken in the preparation of this material, it is based on our understanding of current regulatory requirements and laws at the publication date. As these laws are subject to change you should talk to an authorised adviser for the most up-to-date information. Some content reproduced with permission. No warranty is given in respect of the information provided and accordingly neither Alliance Wealth Pty Ltd not its related entities, employees or representatives accepts responsibility for any loss suffered by any person arising from reliance on this information. Corporate Authorised Representative No 1234989 of Alliance Wealth Pty Ltd AFSL 449221 ABN 93 161 647 007.
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Auswide Bank Ltd may refer you to Alliance Wealth Pty Ltd AFSL 449221 ABN 93 161 647 007 ('Alliance Wealth') for financial advice. For full details of our relationship with Alliance Wealth and its Corporate Authorised Representative, Financial Advice Matters Group Pty Ltd, please visit www.auswidebank.com.au/financialadvice
Published: Friday, 24 Jun 2022
