What Is Financial Resilience?

April 6, 2022 • Lewis Goldsbury

Financial resilience is all about preparing for the worst-case scenario. You never know what’s around the corner – and you need to be financially prepared.

At Fair for You, we understand that sometimes life happens, and things veer off course. Significant life events like a relationship breakdown or an unexpected illness, can have quite an impact on your finances and, more specifically, your financial security.

These events might change your income, assets or debt payments, and you need to be financially resilient enough to navigate the fallout of life’s challenges.

What Does It Mean To Be Financially Resilient?

Financial resilience is essentially the ability to withstand anything that could impact your financial situation.

Let’s break it down. If you want to be physically resilient, you should eat healthier, exercise regularly and take your vitamins every day. But if you’re building financial resilience – you need to budget wisely, build an emergency fund and keep a close eye on your expenses.

Whether it’s physical, mental, or financial, resilience takes time to develop. You can build financial resilience through education, budgeting and employment. And small efforts every day can help you create healthy spending habits and, eventually, resilient finances.

What Is Low Financial Resilience?

Low financial resilience comes down to minimal savings, erratic earnings and factors outside of your control. The Financial Conduct Authority (FCA) found that 14.2 million people have low financial resilience in the UK alone. Money worries can lead to mental health concerns, numerous debts and other forms of stress.

What Causes Low Financial Resilience?

Several factors can impact your financial resilience – and, of course, some people face far more challenging circumstances than others. Here are some of the leading causes of low financial resilience in the UK right now.

Poor Financial Education

Between interest rates and technical jargon, it’s easy to feel a little lost in finance. We Google financial terms, ask our peers for budgeting advice and wade through all kinds of bank notifications. A little education would make a world of difference for most people. We could learn to budget effectively and avoid falling into debt as a result.

Consumerist Society

We live in a world that likes to buy things. A consumerist society relies on impulse buying and does very little to promote financial resilience. Our materialistic tendencies can hugely impact our financial wellbeing, between impulsive spending and inherited money habits. Many financial products take advantage of these tendencies, such as Buy Now Pay Later (BNPL) schemes. BNPL is when you can buy products and pay for them in interest-free instalments after your purchase. However, as a result of BNPL schemes, some customers are purchasing products they cannot afford and struggling to make ends meet.

The Pandemic

It’s no secret that the COVID-19 pandemic had an enormous impact on our finances. Millions of Brits were furloughed, and thousands of businesses struggled to survive the extraordinary circumstances. Thankfully, the FCA was there to support with mortgage and credit payment deferrals. In fact, almost half of UK adults were not affected by the pandemic financially, and 14% even saw an improvement in that regard! However, the remaining 52% still felt the financial blow of COVID-19.

How Do You Build Financial Resilience?

Millions of people are financially vulnerable, and Fair for You wants to help. Follow our quick guide below to build your resilience, and manage any financial pressures in the long run.

1. Identify Your Priorities

Financial planning is all about finding what works for you. Everyone has different circumstances and different priorities. For example, one person may aim to build their emergency fund while another wants a stable income stream. You need to determine what’s important to you and how you’ll achieve those goals.

2. Make A Plan

Once you’ve identified your priorities, you can write a step-by-step plan. Whether planning for a house deposit or retirement fund, you need to think realistically and specifically. There’s no point in setting an unachievable goal that will only dissuade you from financial planning in the long run. Start with a small target for your financial safety net and go from there.

3. Set Up A Direct Debit

Financial resilience doesn’t need to be complicated. Set up a direct debit to your savings account every month, and build up your emergency fund over time. The money will go into your savings before you’ve even seen it!

4. Learn The Basics

You don’t need an extensive financial education to understand the basics. You just need to know where your money is going and how much you’re earning. Your ingoings should be higher than your outgoings, or at least equivalent to one another. You risk going into debt when you spend more money than you earn.

Take a look at your last three bank statements, and get the highlighters out. You can usually split your outgoings into three main categories: variable, fixed, and savings. Variable expenses change every month and include costs like meals out, cinema tickets and holidays. Fixed expenses stay the same every month, such as rent payments, bills and subscriptions.

Use a different colour highlighter for the three categories and colour code your bank statements. Total how much you spend on each category throughout the month and look out for any surprising numbers. You can make a rough budget from these figures and make your way towards a more resilient financial future.

5. Cut Unnecessary Spending

Once you start tracking your expenses, you might be shocked at how much you spend on unnecessary items. You could cut down your monthly takeaway allowance and allocate those funds to your savings instead. Keep your budget realistic and reserve some money for entertainment purposes – after all, everyone needs some fun from time to time!

6. Build An Emergency Fund

The emergency fund is a big part of financial resilience. Start by saving for one month’s living expenses – including rent payments, groceries, energy bills and more. You can build from here and slowly develop six months’ worth of savings. If you lose your job or become ill, you can use the emergency fund to stay afloat. It’s the ultimate financial resilience!

How Fair For You Can Help

Here at Fair for You, we know how difficult it can be when money is tight and you need a helping hand. That’s why we provide an affordable credit service aimed at those on lower incomes to get the home essentials they need.

We’ve partnered with some of the UK’s leading retailers to offer electrical appliances and household furniture – like cookers, washing machines and beds. Simply apply for a loan from us, and we pay the retailer directly.

Our services are designed to put you in control of your finances. Our flexible payment schedules allow you to pay what you can afford, when you can afford it – and there are no deposits or hidden fees. Plus, we’re proud to have a 5-star rating on Trustpilot, with numerous awards for what we do.

If you need a helping hand, head over to our website to check out what’s available, and to see if you could benefit from some Fair for You magic.

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