Building Financial Resilience – Part 1

The 21st century has seen the near financial collapse of the western world, a global pandemic, war and climate crisis, and we are not even a quarter of the way through. 

We live in an unpredictable world, and one where financial resilience has become essential. Financial resilience is the ability for you and your family to weather those economic and life challenges, withstand unexpected setbacks, and continue working toward your financial goals.

Financial resilience goes beyond mere financial stability, essential though that is. It includes the capacity to adapt and thrive in the face of adversity. It’s about being prepared for life’s uncertainties and having the resources to bounce back from setbacks such as job loss, medical emergencies, or unexpected expenses. In essence, it’s your financial “Plan B” when things don’t go as planned.

Financial resilience is not just about surviving tough times; it’s about thriving and maintaining a sense of control over your financial destiny and knowing that even if things don’t go to plan you have a way to get them back on track.

One cornerstone of financial resilience is the creation of an emergency fund, a financial reserve that can help you navigate through turbulent times. 

What is an emergency fund, and why do you need it?

One of the fundamental building blocks of financial resilience is having an emergency fund. This fund serves as a financial cushion that can protect you and your family during times of crisis. 

What crisis? Life is full of surprises, and not all of them are pleasant. Whether it’s a sudden car repair, a medical bill, a job loss or some event that (like covid) affects the entire economy, having an emergency fund in place can provide you with peace of mind and practical help.

Without an emergency fund, you might have to resort to borrowing money or using credit cards to cover those unforeseen expenses. This can lead to a cycle of debt that becomes difficult to escape. An emergency fund can help you avoid unnecessary debt and its associated stress.

Speaking of stress, financial stress is a significant contributor to overall anxiety and mental suffering. Knowing that you have funds set aside for emergencies can alleviate the anxiety associated with financial uncertainties, allowing you to focus on your well-being and long-term goals.

Your emergency fund should be a reserve separate from your everyday current account to reduce the temptation to dip into it for non-emergencies. An instant access savings account is a great option, as it offers both accessibility and a modest return on your savings.

How to build your emergency fund

Actually building an emergency fund requires discipline and commitment. There are after all plenty of other demands on your resources. But it is achievable if you take the right steps to get started:

Set a clear goal: Decide how much you want to save in your emergency fund. A common guideline is to aim for three to six months’ worth of living expenses. This amount provides a substantial cushion for most unexpected situations. Don’t be discouraged if you can’t immediately put way a significant amount. Begin with what you can comfortably afford and you can increase your contributions if circumstances and your financial situation improve.

Create a budget: Track your monthly income and expenses to identify areas where you can cut back and redirect funds toward your emergency fund. Even small contributions add up over time, especially if you make them automatic. Set up monthly transfers from your current account to your emergency fund. Treating your savings like a non-negotiable monthly bill ensures that you consistently contribute to your fund.

If you do dip into your emergency fund for a legitimate emergency, make it a priority to replenish the fund as soon as possible. This ensures that you’re always prepared for the unexpected.

Choose the Right Account

Having a reserve of cash used to be an expensive luxury when interest rates were so low that they hardly offered any return at all. Time have changed, and interest rates are rising fast.

Your emergency fund can work to help you grow your money – if you have it in the right type of account.

Not all banks and building societies are giving interest rate increases to savers quite as promptly as they charge them to borrowers.

A call to us at Continuum could help you find the most rewarding home for your emergency fund, and let you start growing your financial resilience faster.

Call us today.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Protection products or investment strategy, you should seek independent financial advice before embarking on any course of action.

When investing, your capital is at risk.

Investments do not include the same security of capital which is afforded with a deposit account.

The Financial Conduct Authority does not regulate deposit accounts.

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