Financial resilience and following your financial plan during turbulent times

If you’re currently struggling through a difficult financial period, you’re not alone. According to NAB’s Australian Wellbeing Survey for Q4 2023, Aussie households are facing the highest levels of financial stress since mid-2016. One in three Australians believe they are worse off financially than they were a year ago, as interest rates and the cost of living bite hard.

During times of uncertainty, a strong sense of financial resilience can help you weather the storm and keep your finances in great shape for the future. In this article, you’ll discover financial advice you can follow to boost your financial resilience and protect your wealth from financial stress.

Financial stress wreaks havoc on your mental and physical health

Financial stress isn’t just bad for your bank balance – it’s also bad for your health. Several studies show financial stress is linked to poor mental and physical health:

• A study of 10,000 Americans revealed people whose retirement accounts were exposed to the 2008 market crash (retirement accounts lost an average of one-third of their value) reported substantially higher levels of depression and consumed more antidepressant medications
• A study of 988 unemployed graduates in Bangladesh showed unemployment contributed to the development of mental health problems, with high rates of depression (81%), anxiety (61.5%) and stress (64.8%) among the participants
• Studies have shown financial stress can increase your chances of a negative physical health outcome such as poor heart health and a higher risk of mortality. 

Health problems can perpetuate financial stress because they cause higher medical bills and health insurance premiums, and reduce your capacity to work. This is why fostering a strong sense of financial resilience to weather short-term challenges is one of the most critical aspects of maintaining your long-term wealth.

Financial resilience protects your wealth and well-being

Financial resilience refers to your ability to withstand and recover from temporary financial setbacks and challenges, to protect your long-term financial security and stability. Given stress has been shown to impact financial decision-making, financial resilience can help you avoid rash or risky decisions when you’re under pressure.

Think about how hard it is to decide what to eat for dinner when you’re hungry, or choose what to wear for work when you haven’t had a good night’s sleep. Even small decisions are difficult when you don’t feel 100%. But unlike these simple everyday choices, bad financial decisions can jeopardise your family’s future.

You might sell shares prematurely because the market is crashing…  dive into riskier assets such as cryptocurrencies or NFTs because you’re afraid of missing out… or sell assets to pay your bills without considering the tax implications or long-term growth. Financial resilience protects you from short-sighted decisions that can move you off the steady path set out in your financial plan.

Strategies for boosting your financial resilience

Understanding financial resilience is one thing, but actively building it is another. There are two main ways to build financial resilience: the first is to set a strong financial foundation so you’re well prepared when times get tough; the second is to take practical steps to alleviate stress if you do face financial hardship. We’ve covered them both below.

Following these crucial steps can significantly reduce your financial stress when faced with economic uncertainty:

• Set and stick to your budget. Setting your budget is one of the most important methods to maintaining sufficient cash flow and control over your finances.
• Grow your emergency fund. An emergency fund is a financial safety net designed to protect you from unexpected expenses or downturns, without resorting to high-cost debt. Saving up three to six months’ worth of living expenses can safeguard you from short term shocks such as a job loss, interest rate raises, or surges in the cost of living.
• Avoid high-cost debt. Credit cards, car loans, consumer loans, and ‘payday loans’ can quickly erode your financial resilience because of their exorbitant interest rates and fees. Avoiding or minimising these types of debt ensures more of your income can be directed towards savings and investments.
• Protect yourself with adequate insurance. Home and contents insurance, car insurance, income protection insurance and health insurance are all tools you can use to safeguard yourself from unexpected financial stress.

What to do if you’re struggling right now

If you’re facing financial stress but haven’t been able to prepare a strong financial foundation, seeking adequate support becomes a key part of financial resilience.

• Visit the Moneysmart website. This government site has a lot of great information and resources on budgeting and paying bills during financial stress.
• Call the National Debt Helpline. The number is 1800 007 007 and they will connect you to a free financial counsellor for assistance. They also have helpful step-by-step guides on their website.
• Talk to your bank or utility provider. Many banks and utility providers have hardship options that allow you to rearrange your payments if you’re facing financial problems.
• Seek psychological counselling. Speaking to a mental health professional can leave you in a far better headspace to make smart financial decisions.

A financial plan is the backbone of financial resilience

Remember, creating a financial plan is the first step towards building financial resilience. Understanding how much money you need to save, spend, or invest to hit your financial goals gives you clear targets during financially turbulent times, a bit like a lighthouse when a storm hits.

At Poole Advisory, we are a team of experienced and qualified financial advisors serving clients in Bowral, the Southern Highlands, and Sydney. Our Principal Financial Advisor, Anthony Poole, was recently recognised as one of the 50 most influential financial advisors in Australia for 2023.

If you need to put a plan in place to protect your finances with the recent interest rate and cost of living increases, we can help. Get started by booking a free introductory consultation with Anthony here or use our contact form to get in touch.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917