Financial resilience

Financial resilience

The ongoing impact of COVID-19 on economies around the world gives pause for thought when it comes to thinking about our own financial fitness and resilience.

Financial stress is known to negatively impact relationships, health and overall wellbeing, which can include an increased sense of insecurity and having to routinely make tough choices due to finances.

COVID-19 has amplified this stress for many people right around the world, as people adjust to reduced hours of working, perhaps supporting family or friends who have lost their job or dealing with job loss themselves.

Converge International – a global provider of workplace assistance, health and wellbeing programs – offers some practical advice and insights from Dr Vinita Godinho, an internationally-recognised leader in the world of inclusive finance, on how to build financial resilience using the refocus, refresh and restart framework.

The framework is a useful approach to use now, and in non-pandemic times.

Refocus – research and understand what help is available

Everyone responds differently to shocks. Take some time to reflect on what the ‘new normal’ means for you.

What are the financial risks emerging from COVID-19? What steps can you implement to minimise them?

Many governments around the world have introduced specific welfare payments and relief schemes to assist income-affected people through this pandemic.

In addition, financial lenders and utility providers are easing some of their fees and providing increased debt repayment options. The community, charity and NGO sectors, globally, have ramped up their emergency services and welfare programs.

It’s important to review and understand what is currently on offer, Dr Godinho says. If you do not feel confident doing this yourself, seek out a trusted advisor or friend to help you understand what you may be entitled to.

Refresh

You may need to accept and start making financial choices that you haven’t had to make before – and this applies to everything, from purchases at the grocery store to utilities and other bills.

Draw up a list of outgoings, what’s necessary and what help is available.

Assess and prioritise what expenses can be eliminated, what can be reduced or acted upon, and set out a plan to achieve this.

Review your current financial products and services – are they best suiting your needs or could there be other options available?

“Instead of thinking ‘I’ll never cope with this’ realise that this is an opportunity to develop positive, life-changing financial behaviours, especially disciplined saving, spending and borrowing habits,” Dr Godinho says.

Restart

Now’s time to activate your plan.

“Taking small steps to change two daily financial habits – regular saving (no matter how small) and not borrowing for daily expenses, has the biggest influence on financial wellbeing,” Dr Godinho says.

Studies show that budgeting (even informally), controlling your spending, planning ahead and being willing to seek advice – whether from a trusted mentor or paid advisor – also significantly improve wellbeing and reduce stress.

Proactively manage your financial products – compare options and shop for the best deals, check your coverage, set limits and automatic reminders – to minimise your financing costs. Plan for the future, including superannuation, retirement planning and other products to cover costs as you age.

An important priority is to proactively manage debt, so if you can’t pay your bills, then you need to negotiate with utility and other providers for extensions.

Don’t think you’re the only one – there are thousands of people around the world in this position.

Build your savings and community connections

If you’re in a position to, build some savings in a separate fund. Experts suggest aiming for 3-6 months of household expenses.

Studies show that building your social networks, identifying the support you can access, and knowing where to go to for help, can significantly improve financial wellbeing.


Managing credit cards

Here are six tips on how to avoid the debt-cycle and get your credit card debt under control.

1 Hide your cards – don’t add to your debt

    • Stow away those cards somewhere hard to reach at home, so you’re not tempted to put any new charges onto them.
    • With your cards hidden and out of view, look to stopping any direct debit payments on your credit cards. Have regular expenses debited from your bank account. Delay any must-have purchases until you have saved the cash or funds in your bank account.

2 Do a budget and stick to it

    • This can be a bit daunting, but you need to look at everything you owe and work out which debts are costing you the most money.

3 Pay off priority debt first

    • The debt attracting the highest interest rate is the one to focus any additional payments on first.
    • If you’re currently paying more than the minimum amount across a number of cards, you can combine these extra amounts of money and put it all towards paying off the debt with the highest interest rate.
    • Try to maintain minimum repayments on any other debts you have.

4 Cut back to increase repayments

    • If you’re currently only paying the minimum payment across all debt owing, that debt is not going away anytime soon. This is the part where you’ll need to commit other savings or reduce expenditure.
    • That means cutting back – but you will see the light at the end of the tunnel very quickly. Even a modest additional amount directed to debt elimination can make a big difference over time.

5 Once paid off, redirect to the next debt

    • Take the money you were using to pay off the prioritised debt and direct it to the next debt.

6 Once these debts are gone, move on to another goal

    • Once the debt is eliminated, redirect the money you were using to repay lifestyle debt towards another goal.
    • Take a percentage of the monthly amount you were using as a spending allowance. The rest could go into your savings fund.

 

 

“The information in this article is for general information only and should not be taken as constituting professional advice. We take no responsibility for and have no liability for inaccuracies, errors, omissions or anything else in connection with this information.  Please consider seeking independent advice.  All rights including intellectual property rights are reserved”.

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