Financial resilience: what is it, how to achieve it and not lose it?

Domestic economic and financial management can be as complex as any other and can often present us with adverse circumstances. From a strategic point of view, financial resilience is the ability to respond to an unfavorable scenario and prevail.

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What is financial resilience?

Resilience is a term that comes from psychology and refers to a person’s ability to prevail in the face of adverse circumstances through the application of previous knowledge, determination and competence in solving problems of different levels of complexity.

In the financial field, the concept is applied to circumstances of an economic-financial nature that may arise during the course of adult life. These circumstances may have varying degrees of severity and complexity. However, resilience makes it possible to reduce uncertainty and make decisions.

Among the main adverse economic circumstances in which a person may find him/herself are job loss, divorce, loss of savings or devaluation of investment assets -among many others-. In the face of this, resilience must be accompanied by risk management techniques.

Similarly, uncertainty and its impact on our state of mind can also be a determining factor. Therefore, resilience advocates practicing a calm and determined mindset that favors effective actions to reverse the situation. Resilience is therefore considered a skill to be perfected.

Financial resilience implies an improvement in our preparedness for such situations and the ability to prevail over circumstances from a constructive point of view. This notion also implies the following postulates, which provide the necessary capabilities and competencies to face any adverse economic scenario.

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Financial resilience and saving capacity

The first major resource that financial resilience involves is the ability to save. This is a constant activity that must be practiced on an ongoing basis, taking into account budget needs and unnecessary expenses. Maintaining a strict savings regime that allows us to dedicate part of our income to build up a need fund is essential so that, in the event of a significant economic eventuality, we have a certain degree of autonomy.

Among the main notions to take into account in order to build up a fund and work on our saving capacity, the constant monitoring of spending stands out. That is, to reduce unnecessary and recurrent expenses. Likewise, establishing different sources of savings -fixed deposit, real estate, etc.- allows us to take care of the savings themselves so that they are not affected in times of crisis and inflation.

Developing a financial plan

A thorough analysis of your finances and the development of a financial plan to deal with difficult situations will improve your response to such situations and the effectiveness of your decisions. Therefore, it is essential to have financing options, income yield projections and specific plans for different circumstances.

The financial plan should also include the different current financial expenses: in case of applying for a loan, mortgage or credit, it is necessary that the payments are projected in a financial schedule with a detailed schedule of the expenses that would be incurred by delaying payments, refinancing the debt or resorting to an early cancellation.

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Study and learn

Although the two previous sections are very effective in preparing the individual to face adverse economic circumstances, the fact is that any decision or plan must be based on sound knowledge. This must take into account the economic resources, financial instruments and legal provisions that apply to them.

The lack of knowledge in economic and financial matters can be a very important weakness when a person is faced with serious economic situations. That is why it is necessary to study the fundamentals of home economics, to know the financial products and services available in the market and the legal options that allow us to reduce the impact of insolvency.

Assistance and professional advice

A good way to establish an emergency plan in case of an eventual crisis in our economy is to turn to a professional in savings and finances. If possible, such a professional can review the financial plan and provide more precise knowledge about the different areas of protection. The cost of this is marginal in relation to the financial resilience benefits.

In this regard, the options are many: from accountants to financial advisors, banks and investment brokers, putting together an effective financial plan is very accessible and allows for risk reduction in the face of economic contexts such as the current one. This is especially true if you have varied assets that take time and effort to manage.

Home economics and personal finance can be overwhelming for people with no experience in the field. However, there are certain criteria to be taken into account that allow to reduce risk and to have a plan of action in case of adverse situations. The so-called financial resilience is very effective for this purpose.

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