Building financial resilience

Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms, most of them will 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 can anticipate events that would throw our finances into disarray. A house burning down. Not being able to work due to illness or injury. The death of a breadwinner or caregiver.

With some idea of the type of threats we may face, it is possible to insure against some of them. If you have taken out any type of insurance policy you’ve already made a start on your resilience plan.

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 and regularly contribute to.

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 at least 12 months’ worth of pension payments, redemptions of growth assets can be deferred, giving time for the market and your super fund investments to recover.

Find savings or concessions

The internet abounds with tips on how to cut costs and save money. In difficult economic times cost cutting can help you maintain your financial buffers and preserve your savings.

Equally, you might be eligible for concessions or entitlements from the Government you weren’t aware of. The Low-Income Health Care Card and Commonwealth Seniors Health Card are potential avenues to consider if you meet the income test thresholds. Both cards can offer substantial savings on everyday items like Pharmaceuticals. The income test thresholds regularly change, so best to stay up to date or speak to your financial adviser.

Diversify your investments

A 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. This removes the need to try and achieve the impossible by consistently picking winners. A good long term investment strategy should be maintained through all market cycles.

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. A financial adviser is ideally placed to assist you in developing your own, personalised plan for financial resilience.

Contact Muirfield Financial Services by phoning 1300 242 700 or heading online at muirfieldfs.com.au