Guiding your life’s biggest financial moments

Personal Finance

Are you financially resilient? 5 steps to strengthen your economic security

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A young woman lost in the Land of Oz asks how to get back to Kansas. “If I were you,” she told him unassisted, “I wouldn’t start with Oz.” But if Oz is where you are, you have no choice; from there you have to start.

It is like that with many financial difficulties. We need to start where we are, in the thick of it.

After battling stomach cancer at the age of 72, artist Henri Matisse was confined to a wheelchair. It made painting or sculpture difficult. But his passion for art was not discouraged. Matisse thus cultivates a new artistic medium: cut paper. By cutting out shapes and forming collages, he created a late work that is as celebrated as his early paintings.

Matisse’s artistic reorientation was an act of creative resilience. The kind of resilience that is increasingly becoming a necessity in our financial lives. Research from the National Endowment for Financial Education shows that 96% of Americans experience four or more income shocks – a health crisis, job loss, or other life transition – during their working years.

Often times, people are faced with these shocks from less than ideal starting points. Most Americans say they would have a hard time paying an emergency expense of $ 1,000.

I like to think of financial resilience as the ability to overcome financial difficulties while still enjoying life. It’s more art than science, because everyone’s situation is different. But we all proceed from the thickness of it.

And the conditions seem to be getting thicker. On the one hand, life expectancy is increasing, which means that the younger generations will have to save for a longer retirement than the previous ones. Another disadvantage of living longer is that the chances of experiencing unfortunate events are greater.

Riley, Clio Infra and UN Population Division

Simply starting to save for retirement is a challenge for most young adults, who typically enter the workforce with over $ 30,000 in student loan debt.

Meanwhile, many people who grew up in the post-war years when a degree was to translate into a well-paying job, annual vacation, education savings for 2.5 children, and a pension or a comfortable retirement fund, find this is not always the case.

An Allianz Life survey found that half of Americans are forced to leave the workforce earlier than expected. The main reason was the unanticipated job loss experienced by about 900,000 Americans aged 60 to 69 as a result of the pandemic, according to the Bureau of Labor Statistics. An unexpected exit from the workplace can mean missing out on extra years of peak earnings, potentially lower retirement benefits, and the need to start dipping into assets early.

It’s important to conceptualize your finances in concrete terms: how much to save in a 401 (k), what type of investments to buy, when to report to Social Security, etc. But it’s also important to think in the abstract, because it’s hard to account for adversity – a pandemic, a cancer diagnosis, the automation of your work.

While our financial pictures are all different, the elements of financial resilience can be crafted like a paint by numbers kit:

The purpose of this money is to alleviate the pain of an unforeseen financial blow.

Of course, it’s not as sexy as getting triple-digit ROIs, but insurance will probably save you more than the market. Take the time to understand what your policies cover and compare the coverage by far more than the price.

The appropriate amount varies depending on your desired lifestyle. But for someone earning less than $ 100,000, it’s a good idea to save about seven to ten times your salary by the age of 65. Saving for retirement is not only used to achieve your goals or dreams, but also to preserve your lifestyle according to your age. and health makes you more vulnerable to financial shocks.

Skills help us earn better wages and keep us in the game. A Brookings report estimates that about 25% of jobs in the United States will be heavily impacted by automation over the next several decades. It is therefore worthwhile to acquire a new skill or to attend an educational workshop every two years.

Sounds obvious, right? Sadly, many of us, for a myriad of reasons, are simply flying away. A plan will not prevent adversity. But financially speaking, when you have full knowledge of your situation – your cash flow, your bank balances, etc. – you are better able to adapt.

As with Matisse, resilience finds a new angle. It creates a new path so you can keep moving when the world around you, like a whirlpool, suddenly changes.

Or, in the wise words of the thirteenth-century Persian poet Rumi: “As you begin to walk the path, the path appears. “

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