Four Qualities of the Financially Resilient

Resiliency, and the overwhelming lack of it, keeps presenting as a conversation topic recently.  When discussing students in the classroom, athletes at training, and employees at work, this seemingly intangible concept arises as a deficiency hindering progress and improvement.

Resilience is worth building in all realms of life because it is key to alleviating anxiety of the unknown.  Resilience gives us a more comprehensive understanding of ourselves and quells fears as we learn to trust ourselves to overcome whatever challenges come our way.

In the rare situations where we can build resilience easily, we should take advantage to remove worry in an aspect of life.  Financial resilience is one of those areas.  Fortunately, while building resilience is a protracted effort in many areas, building financial resilience has more specific patterns.  We see common qualities among the financially resilient people in our lives.  Mimic them to build your own financial resilience.  

1.  They have emergency funds.

Everyone encounters an emergency at some point.  The financially resilient have the money they need when they encounter an emergency.  This usually comes in the form of an emergency fund, at least in the early stages of wealth building.

The best place to house an emergency fund initially is a high-yield savings account (HYSA).  High-yield savings accounts gain interest so your money grows to keep up with inflation.  HYSAs are also more accessible relative to investment accounts.  HYSA holders can easily transfer money to a checking account to use almost immediately.

As individuals build wealth in HYSAs for non-emergency reasons, they may adopt a looser emergency fund strategy that allows overlap with fun spending categories and emergencies.  This still counts as having an emergency fund because these individuals consistently retain enough money to absorb the impacts of an emergency.

The financially resilient do not worry about the financial impact of an emergency.  They have the money so they can focus on the emergency without financial constraint.

2. They know how much they spend.

Resilience is the confidence to adapt.  Adapting is impossible when you do not know your baseline requirements.  In personal finance, this means knowing how much you spend.  You need to know how much your life costs if you want to plan how to fund it.

The most financially resilient also know the minimum amount of money necessary for their basic needs.  If you cut out the vacations, new clothes, throw pillows, and restaurant dining, what does your life cost?  Knowing what both your current life and a tolerable, more frugal version of your life cost adds a layer of confidence that creates resilience.

The financially resilient eliminate unknowns because they know unnecessary unknowns create unnecessary anxiety.  Knowledge is confidence, and confidence is the reassurance we need to be resilient.

3.  They have multiple streams of income.

Multiple streams of income mean multiple opportunities to fund a person’s lifestyle.  If you only have one stream of income, losing it leads to panic as you figure out how to fund your lifestyle.  The more streams of income you have, the less important each stream becomes.  The likelihood that you can fund your lifestyle after losing a particular stream of income increases.

Multiple streams of income can mean side hustles, owning small businesses, or income from real estate investments.  It can also be as simple as you and a partner each having a job and knowing you can live off of the income generated from just one of the two jobs.  Any income diversity increases options, and having options increases resilience.

The resilient have options.  That is how they navigate difficult scenarios that cause others to crumple.  Options make the resilient flexible so they do not have to fear change.

4.  They have a plan for the future.

The financially resilient invest for the future because they know the farther you go into life, the more likely you are to encounter something unpredictable and expensive.  Accumulate wealth early, invest early, and set yourself up for a future with more options.

Wealth building can sometimes be interpreted as greed or excess.  It is actually forgoing excess in the present to build peace of mind in the future.  Living with fewer worries is the true manifestation of wealth.

The financially resilient usually have a specific plan, whether to accumulate a certain amount of wealth or maximize retirement accounts, rather than haphazard saving and investing.  Plans encourage us to invest more aggressively and stick to our target numbers.  That said, the financially resilient know plans can change, but they know they have other tools of financial resiliency to give them flexibility and options in unpredictable situations or emergencies.

Building wealth is not valuable because you have money.  Building wealth is valuable because it creates financial resilience.  Financial resilience is the way to live without financial fears.  By increasing our preparedness, awareness, flexibility, and options, we create a financially resilient future.