How to Cultivate Resilience in the Face of Adversity | INVESTEDMOM
Let's not tip-toe around it. These last few years have been a doozy. From the slow recovery of unemployment after the COVID-19 pandemic, the volatility of the stock market, ever-growing inflation, and the uncertainty of job security for many people, it's not a surprise many people are feeling financially uncertain.
In fact, as of April 2023, 70% of Americans reported feeling financially stressed, and tech companies who have traditionally been high-paying, secure jobs have laid off more than 244,000 in one year, leaving many scrambling to find new positions and being unemployed for months at a time.
It's no surprise that people all around the world are looking for ways to be more financially resilient in the face of adversity. This article will help you understand the state of the world, learn the fundamentals of financial resilience, discuss strategies to enhance economic stability, and help you prepare for financial uncertainty.
Understanding Financial Uncertainty
We can put a finger on many factors that leave us feeling uncertain, but let's go into more detail to understand how they are causing financial uncertainty.
The Stock Market
First, the stock market. While it is often somewhat volatile, this year has been exceptionally so. The volatility is due to lingering economic uncertainties from 2022, geopolitical tensions, and ongoing adjustments by central banks worldwide. This year, there were four bank failures, the same as in 2020, after none in 2022 and 2021.
This volatility doesn't mean it's not a good investment option. It does mean it needs to be part of a broader portfolio to protect yourself and provide a safety net. More on that later.
Inflation
Next, inflation. Inflation is the general increase in prices and the fall in the purchasing value of money. In 2023 so far, inflation has skyrocketed due to supply chain disruptions, labor shortages, and the aftereffects of stimulus packages from years past.
Inflation means that although your salary might be the same, all of the things you purchase, such as housing, utilities, groceries, etc., continue to increase in price, making financial stability difficult for many.
Unexpected Expenses
Next, there are unexpected expenses. Maybe you are meeting your budget even with inflation but have barely any extra money to spare, and suddenly, your car breaks down. What do you do?! I will tell you how to prepare for circumstances like these so you will know exactly what to do.
Retirement Stressors
Finally, there are retirement stressors. As inflation continues and social security continues to dwindle, many worry they will not have enough saved for retirement. In fact, many are retiring later and even returning to the workforce after retirement for this very reason.
While these situations are incredibly stressful, there are ways to prepare for each of these scenarios to ensure you have full stability in times of adversity and create a positive money mindset that will help you be successful no matter what life throws at you!
The Fundamentals of Financial Resilience
Now that I have you stressed out (don’t worry, I’ll fix that), let's discuss 3 fundamental ways to help you build resilience and get through all the life events that come your way because when you have a plan, life's circumstances don't seem as scary.
Sinking and Emergency Funds
Sinking and emergency funds both work to cover unexpected expenses and help with building resilience. However, they are different in their distinct purposes.
A sinking fund is established for unexpected expenses that are larger than day-to-day costs. These include things such as;
New tires for your car,
Christmas gifts,
Vet bills,
Wedding expenses,
Travel,
School books, etc.
The value of your sinking fund depends on what you plan to use it for. Take the total amount and divide it by when you want to utilize it.
On the other hand, an emergency fund is a safety net or financial buffer designed to cover unexpected and urgent expenses. These include:
Medical emergencies,
Job loss, and
Injuries/illnesses requiring short or long-term disability.
For an emergency fund, the goal is to have enough money set aside to cover 3-6 months' worth of living expenses to ensure you have a financial cushion that will help you navigate traumatic events and uncertainties.
To start saving for these funds:
Assess your budget to determine how much you can realistically set aside for your funds.
Set clear goals by defining what you are saving for, the amount you need, and when you will require the funds.
Open separate accounts and set up automatic transfers each month. There are many savings accounts that offer higher interest as well to help you grow the value of your money.
Review and adjust your contributions as needed.
A positive mindset
Financially challenging situations extend beyond monetary setbacks. They also have a significant impact on mental health and happiness. Stress associated with financial insecurity can lead to anxiety, depression, and other mental health conditions.
And who wouldn't be stressed if they were constantly worried about making ends meet, paying bills on time, and knowing how to prepare for the future? However, cultivating a positive financial mindset has a significant impact on the psychological effect during struggles.
Excellent strategies include:
Visualization, where you create mental images of your financial goals and the steps needed to achieve them to provide motivation.
Affirmations and positive self-talk to help shift your perspective from a scarcity mindset to one of abundance.
A positive mindset in life and with finance will lead to better mental health, positive relationships, and better health. It will help you to improve your problem-solving skills, which will help immensely during times of adversity.
Life insurance
Life insurance is critical to building resilience. It not only will protect your family during times of adversity, but it also helps to secure generational wealth for years to come.
There are 4 main types of life insurance:
Term Life Insurance provides coverage for a set period of time, i.e., 10, 20, or 30 years. The insured pays a premium, and their beneficiaries get the payout in the event of their death. If the term ends and the policyholder is still alive, there is no payout.
Term life insurance is typically the most affordable option. It is ideal for those looking to secure their family's financial stability during crucial years, such as raising a family or paying off a mortgage.
Whole Life Insurance, also known as permanent insurance, provides coverage for the lifetime of the policyholder. These plans are typically more expensive but build cash value you can borrow against and withdraw.
Whole life insurance is an excellent option for those seeking a long-term investment and lifetime coverage.
Universal Life Insurance is similar to whole life insurance, but it offers more flexibility. These policies accumulate cash value tied to a financial index, and you can utilize the funds if you need to before death.
Variable Life Insurance policies allow the insured to invest the cash value of their life insurance into various investments. The investments offer the potential for higher returns with the caveat of higher risks. These policies are best suited for individuals who understand investments or those with guidance willing to take a chance for greater rewards.
Each family and individual's needs will differ, so review policies to ensure you find the best one for your family. And know that regardless of which option you choose, you can rest assured knowing that your family will be protected financially in their time of need.
Strategies to Enhance Financial Resilience
Now that we have covered the essentials. Let's talk about some additional strategies you can utilize to build resilience in the face of adversity.
Diversify Income Streams
Diversifying income streams means you generate income from multiple sources instead of relying on a single source. Reliance on a single source of income is risky because it leaves you vulnerable to unexpected job losses, industry downturns, or other financial setbacks. When you diversify income streams, it spreads the risk across various sources, which provides a safety net during times of adversity.
Some excellent ways to achieve this include:
Freelancing and consulting work from platforms such as Upwork and Freelancer,
Investing in real estate,
Dividend stocks or bonds,
Starting a side business like an Etsy shop to sell handmade goods,
Online content creation on platforms like YouTube, blogging, or podcasting,
Rental income from equipment or property, or
Sell your expertise through the creation of an online course or E-book.
Continuous Financial Education
Keeping up with financial trends and news is an excellent strategy for building resilience. Knowing what is going on in the world will help you prepare for the future, no matter what it holds.
There are seminars, workshops, and online courses you can take that will help you gain the essential knowledge you need. At Invested Mom, I created a book to help you learn the basics of financial literacy if you hope to get started immediately.
Another option is working with a financial advisor. They can help guide your preparation efforts without requiring you to learn about all the nuances of the finance world.
Building a Supportive Financial Network
Building supportive relationships and a great financial network is essential to building resilience in the face of adversity. Your network should consist of trusted financial advisors, mentors, and peers who provide guidance, share experiences, and offer support during financial decision-making.
Regular Financial Check-ups
Once you have a financial plan in place, it is essential to review it on a regular basis to ensure it still meets your needs. For example, if you have added children into the equation, it will likely change your financial goals and your need for financial security in times of adversity.
Preparing for Financial Uncertainty within Your Family
Once you have excellent plans to protect your family, the next step is to involve them in the process. Involving your family is done through:
Open Communication
Discuss finances with family members who are affected by the financial decisions you make and help set them up for success when they face times of adversity.
According to the Child Mind Institute, you can begin talking to your child about money in 2nd or 3rd grade when their math skill gets to the point they are able to understand. Just ensure your conversations are age-appropriate.
Joint Financial Planning
Even if you don't share checking and savings accounts, you and your partner should be discussing family budgeting and savings decisions. Make sure you set financial goals and milestones together so you can be on the same page, become more resilient, and meet your goals together.
Preparing for Future Generations
Last, parents must help prepare future generations to be financially responsible and have positive coping skills. Ways to do this include;
Teaching about budgeting, saving, credit, and debit,
Setting up college funds,
Setting up wills and trusts,
Providing resources and learning materials, and
Modeling financial responsibility.
Start Today and Increase Your Financial Resilience!
Difficult times and traumatic events are unfortunately part of life, but you can start preparing your family today to help them become more resilient in the face of adversity.
Start by creating sinking and emergency funds and investing in life insurance. Then, ensure your income streams are diversified, you participate in continuous financial education, build a supportive financial network, and have regular financial check-ups as your financial situation changes.
Finally, prepare your family for the future and create generational health by openly communicating about finances early, participating in joint financial planning, and setting up college funds, wills, and trusts.
At Invested Mom, I’m here to help better prepare you for your financial future. To learn more about planning your financial future, check out my new book, A Wealth Building Framework. I will go into detail about planning your future and provide practical advice to help you start preparing for the future today!
Meet the Author:
Inge was born and raised in Cape Town, South Africa, and moved to Canada in 2010 looking for a better life. She always had an entrepreneurial spirit and started her first side hustle when she was 9 years old – selling fudge at school during lunch breaks.
It wasn’t until much later that she realized that saving isn’t enough to get ahead. She was always very interested in real estate, but saving up for a down payment was grueling and slow, and the demands of life kept getting in the way.
She started investing in herself and upgrading her skills while learning how to invest. She quickly became debt free and compounded her money at a staggering rate.
It wasn’t until she became a coach that she realized how significant an impact she can make in people’s lives by sharing her journey, learnings, and processes.
So here she is, advocating for everyone who is invested and wants to build their wealth, especially the mommas!