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4 hours ago
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Understand it
Financial resilience doesn’t just mean having lots of money stashed away, but rather having contingency plans in place for certain scenarios.
For example, could you cope if interest rates rose, you lost your job, your car gave up or you separated from your partner?
Aiming to be financially resilient means finding a way to make your situation secure – no matter how unpredictable life may be.
Start an emergency fund
An emergency fund offers a buffer against financial shocks, such as job loss, being unable to work for health reasons or needing home or car repairs. Having these savings can mean the difference between coping with a financial setback and needing to borrow money to survive.
The investment platform Hargreaves Lansdown publishes a “savings and resilience barometer”, which it calculates every six months. For savings, it measures resilience as having an emergency fund to cover at least three months’ worth of essential spending. The latest data found 65% of people were in this position. If you are one of the other 35%, see whether you can work on getting up to that level of savings.
Build a realistic budget
Budgeting tools – often offered as part of mobile banking apps – can make tracking your spending much easier than it was in the days of receipts and spreadsheets.
Sarah Coles, a personal finance expert at Hargreaves Lansdown, says: “Building an emergency fund often starts with drawing up a budget to see exactly where your money is going. This should reveal the areas where you can cut back a little, to free up cash for savings.”
Don’t assume bills are set in stone, Coles says. It may be possible to reduce your payments by using comparison sites for your energy, broadband or media packages.
Coles says: “Once you’ve freed up the cash, set up a direct debit to come out of your account and go into savings, before you have chance to absorb it into another corner of your spending.”
Think long term
If you have your day-to-day finances under control, start planning for the future. What this entails will depend on your life stage. Securing somewhere stable and affordable to live could be your next step, or you may want to start thinking about how you can make life easier in retirement.
If you’re young and renting, opening a lifetime Isa can be a great way to save to buy a home as the government gives you a 25% bonus on up to £4,000 of savings each year. However, you need to look out for the limit on property prices and check that you will be able to use it where you live.
It’s never too soon to think about your pension. Clare Moffat, a pensions expert at the insurer Royal London, says: “Generally speaking, the best preparation for your long-term future is to start saving as early as you can. Saving as soon as you start working, and before you start a family, enables small amounts of money to grow into larger sums over time.
“It’s a good idea to regularly review your pension savings on your savings journey, checking how much you have saved at least once a year. As well as showing how much is in your pension, [a statement] will also let you know if you are on track for the retirement you want.”
Check your NI record
How much state pension you will get when you retire depends on how many qualifying years of national insurance (NI) contributions you have made. In general, if you reached or will reach state pension age after April 2016, you usually need at least 35 qualifying years to get the full payment, and at least 10 qualifying years to get any pension at all.
Eligibility for some other state benefits also depends on your NI record, for example maternity allowance, contribution-based/new-style jobseeker’s allowance (JSA) and contribution-based/new-style employment and support allowance (ESA).
You can check your NI record at Gov.uk and find out if you can make voluntary contributions to fill any gaps. Gaps are typically caused by periods of unemployment or low earnings, taking time off work because of caring responsibilities, or living or working abroad.
Get the right insurance
Victoria Francis, the head of individual protection propositions at the insurer Aviva, says insurance can play a vital role in bolstering your financial resilience and helping you plan for ill health or the impact of a bereavement.
“Income protection is a type of insurance that replaces some of your income if you’re unable to work because of illness or injury,” she says. “Life insurance pays out a lump sum when you die, which means you won’t see the money, but if you have loved ones who rely on you financially, it might be important to you to make sure they can continue to live without acute financial difficulties after your death.” Critical illness cover often comes hand in hand with life insurance and will pay out if you’re diagnosed with one.
You should protect your home and possessions, too. Homeowners generally need buildings and contents insurance, while renters just need contents cover. Adding personal possessions cover out of the home can be well worth it in case of mobile phone or bike theft, both of which are depressingly common.
Know your property rights
More people are choosing to cohabit rather than marry, but unlike married couples or those in civil partnerships, they have limited legal rights over their partner’s assets or property.
This means if you live in your partner’s home, you could be out on your ear pretty quickly should you split up. If you’re contributing to your partner’s mortgage, discuss with them what this means in terms of a stake in the property, if any, and take legal advice.
If you’re buying a property together, ensure both names are on the title deeds and formally agree ownership shares if one of you has contributed more towards the purchase price or mortgage. This agreement can be detailed in a “declaration of trust”, which can help avoid disputes if the relationship ends.
Be careful of debt
Student loans and mortgages can be essential for securing your financial future but other types of debt such as loans for cars, holidays or weddings are arguably not as necessary.
Think carefully before funding your lifestyle with buy now pay later, credit cards, loans or overdrafts. Owing multiple debts to different providers means it can be easy for things to spiral out of control.
If you already have debts and are struggling with the repayments, professional debt advice can help you get back on track.
