Start saving, budget and think long term: how to build financial resilience

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<span>Bolster your financial resilience to make your future more secure.</span><span>Illustration: Jamie Wignall/The Guardian</span>
Bolster your financial resilience to make your future more secure.Illustration: Jamie Wignall/The Guardian

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.

The best pension preparation is to save as early as you can … as soon as you start work, and before starting a family