What real financial resilience feels like
Financial resilience is the ability to weather the financial impact of certain life events. But what does it feel like?
After two full-on years of pandemic and one of pandemic plus inflation (amongst other things), managing money in today’s world seems to be a whole new ball game. And that’s where building financial resilience becomes crucial – for both your financial health and your emotional well-being.
Here are some key benefits that being resilient can bring into your life.
1. A boost for your personal and mental health
As research shows, wealth and mental health are intertwined: financial difficulties can cause stress, making it more challenging to earn and budget… leading to more stress.
In a nutshell:
Money and mental health influence each other. A 2019 UK survey(1) found that half of people with a debt problem also had a mental health problem. At the same time, people with mental health problems are also more likely to have a debt problem.
Money stress affect people health in many ways. The latest Ipsos Global Advisor Study(2) revealed that financial stress was the biggest factor impacting Kiwis’ mental well-being in 2022. And according to previous NZ-based surveys(3), money concerns manifest in a number of ways, including missing out on social activities, not accessing health services, and making unhealthy eating choices.
But here’s the good news: a positive relationship also exists. Recent research from Australia(4) confirmed that financial well-being can improve mental health, and improvements in mental health can boost financial well-being.
So, how can you turn a ‘vicious’ cycle into a ‘virtuous’ one? By taking proactive steps to shield your financial goals from the unexpected.
2. That ‘sorted’ feeling…
Rather than reacting to things, being resilient means you’re able to weather the ‘storm’ that’s brewing on the horizon.
Of course, the unexpected can come in many forms, so true resilience is holistic. Here are some quick examples:
Covering an unexpected expense – According to data from the Financial Services Council(5), two in five New Zealanders surveyed would be unable to access $5,000 if something unexpected were to happen. That’s where your emergency fund can make all the difference. To get that ‘sorted feeling’, many experts recommend putting aside at least three to six months’ worth of living expenses.
Protecting your income – Do you and possibly other people depend on your income to meet short and long-term financial commitments? If so, personal insurance may be worth considering. Once again, it’s all about peace of mind: get in touch with an insurance adviser to learn more about things like income protection, health insurance, and life insurance.
Investments – What’s more unpredictable than investment market movements? Risk is a natural part of investing, but that doesn’t mean investing is ‘just too dangerous’. What you need is finding your comfort level and building a diversified portfolio accordingly. In short, while you can’t hide from risk entirely, you can manage it. Try our digital advice tool to find out about the recommended personalised KiwiSaver portfolio for your situation
3. You are in control!
Financial resilience puts you in control of your finances. It means you can focus on staying true to purpose rather than simply ‘survival’.
Take debt, for example. When used strategically, with a clear plan and objectives, debt can help you build your wealth. However, when it comes to high-interest debt like personal loans or credit card, it’s easy to get caught up in spending. And the longer your debt lingers, the more expensive it gets due to interest.
By repaying debt and sticking to a budget, you can have more money available for other goals, like saving for retirement, building an emergency fund, or enjoying a more comfortable lifestyle. And ultimately, it puts you back at the steering wheel of your financial life.
4. Confidence in your decision-making (and your future)
Like to be feel more confident in your money management? Then, financial literacy is an essential ingredient to add to the mix.
A strong foundation of financial literacy can support a number of life goals, like using debt responsibly and saving for the future. It’s an ongoing, never-ending journey of learning: the more you learn, the more you can expand your horizons and look forward to a happy financial future.
Make sure you jot down a list of reputable sources to follow: here you’ll find some of our favourite financial podcasts and books for inspiration. Plus, check out our Education Centre on a regular basis for more insights: as you might have guessed, we’re big fans of financial education.
So, how can you build financial resilience?
Now that we’ve talked about the benefits, you may like to know: how do I create resilience in my financial life? Essentially, it comes down to three things:
- Managing your risk
Life is full of unexpected things that can throw your financial plans off course. But there are tools designed to mitigate risks before they become issues. Think of personal insurance, for example: depending on the policy, it could make all the difference if you became serious ill, had a severe accident, or were no longer around for your family. When it comes to mortgages, fixing your mortgage rate can protect your money from rising interest rates, though at the expense of some flexibility. And lastly, to protect your savings from investment market volatility, you can diversify your strategy. Diversification is about minimising risks (to a level you’re comfortable with) while also maximising potential returns (to stay on track with your goals).
- Having emergency funds
Another key step to achieving financial resilience is having savings set aside for emergencies. In many ways, limiting your spending to build your rainy-day fund is an act of self-care. It's a cushion you can rely upon when things go suddenly south, freeing up your headspace for other key financial decisions. Remember: emergencies do happen, so make sure you always expected the unexpected – and prepare your finances to absorb the impact.
- Find someone to talk about it with
Money talks aren’t easy, but they’re a step in the direction of a happier and healthier relationship with your finances. Make time to talk about money with your family and friends: these open conversations are an opportunity to share your concerns, hear from other people’s experience, and take in their perspective. Especially if you’re building a life together, having money talks can help you and your partner align your efforts and identify gaps that need bridging.
And of course, don’t underestimate the benefit of a conversation with an expert financial adviser. By asking you the right questions and answering yours, a financial adviser can help you see beyond your horizon.
Te Ara Ahunga Ora Retirement Commission - Financial stress impacts mental wellbeing