If you’re new to my blog (or to the whole concept of financial resilience) let’s start with the basic definition:
Financial resilience is the ability to keep a steady income, regardless of the surrounding context.
If you read this carefully you’ll notice a couple of not so obvious things. First, this is about generating income steadily, and not necessarily in huge amounts (no “get rich quick” scheme here, sorry), and second, this income generation should continue regardless of the surrounding context. Which is a fancy way of saying that you should be able to generate income even during economical crisis. Or global pandemics.
So, how could one become financially resilient? Without further ado, let’s go:
- Save some money every time you get some money
- Don’t get to a point where you have to spend the money you saved
- Rinse and repeat
Let’s take them one at a time.
Save Money Every Time You Get Money
In order to get money, you have to be useful to other people. Period. I’m not even talking about that here, because I already wrote about it many times (also because it is a continuous process, always improvable).
So every time you get money, put aside some of it. That requires a significant mental shift. If, for instance, you know you will receive 1,000 EUR, form a client, or from your boss, don’t think of it in terms of 1,000 EUR available. Some of it will be available, but the rest must be put aside. The mental shift will require you to slack every income you are supposed to receive by the amount you’re going to save. If you don’t do that, in time, the incentive to save will weaken. So, instead of thinking, I’m getting paid 1,000 EUR, think: “I’m getting paid 800 EUR, and 200 EUR will go into a jar, instantly, and I already forgot about it”.
Also, try not to think in absolute terms, don’t set specific goals, like “I want to save 10,000 EUR by Christmas”. If you do this, after you get there you’ll experience some sort of weird confusion: “ok, I saved 10,000 EUR, now what?”. Instead, make it continuous. Make it run on autopilot. Make it blend with your lifestyle.
Don’t Get To The Point You’re Forced To Spend Your Savings
That’s another mindset shift, one that is a bit more subtle. It requires living your life with a lot more care and research. From knowing the potential and economical conditions in your area, up to taking continuous care of your health, there is a huge spectrum of stuff that you can adjust and improve. Otherwise, it can slip into “unexpected situations”. You know, the kind of situation that you “have to take care of”, and even be happy that “at least I had some savings apart to avert the crisis”.
Well, not really. 99% of the situations that require “your immediate attention” can be solved differently, or prevented entirely. A chronic health condition can be avoided if you keep a simple, healthy lifestyle. An economical crisis can be averted if you educate yourself and start identifying historical cycles (history always repeats itself, always).
And there are also “opportunities”. Like this cruise holiday that “it’s on flash sale and you can get it with a baffling 80% discount”. Come on. Do you really need a cruise holiday? Did you even know cruise holidays existed before seeing the ad? Chill out.
And it’s almost the same with investment opportunities, the significant difference here being that investments are supposed to multiply money, while entertainment is designed to burn money. Investing is a completely different aspect, though, and we’re going to talk about it another time.
Rinse And Repeat – Keep The Habit
The two steps above, constantly repeated, will create a very interesting situation.
On one side, there will be an increasing financial cushion, readily available. Not spendable, but available.
Having some available amount of money changes your mindset enormously. It clears you mind, allowing you to work better, generating more income. It’s a virtuous circle.
On the other side, you will be incentivized to continue generating income, as you’re not living off of your savings. Many FI (Financial Independence) gurus are advocating early retirement as a life goal. I don’t know. I tend to be of a different opinion here. I think we should continue to generate income for as long as we can, by being useful to other people. So the virtuous circle expands even more: the more you generate income, the more you save and the more you are incentivized to generate income.
Of course, there are caveats. Don’t overwork yourself. Don’t be greedy. Don’t get lost in work as the only reason to be alive. Do enjoy life, but don’t do it by breaking the bank. Instead, create a continuously growing gap between the income and the spendings, which will continuously upgrade your lifestyle.
One last word about “regardless the surrounding context”. What if there is some economical crisis? What if there is a global pandemic? Well, if there won’t be any other way for you to generate income anymore, you can obviously resort to savings. But it will be for a limited time, once the situation improves (which should happen usually in months, very rarely in years) you should be getting back to generating revenue.
In this case, resorting to savings as life support will be just another form of income generation. Only the one who pays you know it’s… you. Yes, you generated that money which, in time of crisis, temporarily switches its status from “savings” to “income”.
You see, when you’re saving, you’re actually paying your future self, when no one else would want (or be able) to do it. Worth thinking about this, right?
Now, the process described here is obviously a blatant oversimplification. It takes a lot of time, persistence and discipline to get there. It’s a long learning process.
But putting it in simple words makes it a bit easier to remember, hence, easier to apply.