Becoming financially resilient

One of the biggest financial mistakes we see people make is not preparing financially for their future, which can take many forms. From not quite saving enough to cover the expenses of a holiday to not preparing sufficiently for retirement and running out of money well before running out of life.

We see this play out in other ways, namely, not preparing for an economic downturn when times are good. This can be made worse if you’re on an inconsistent income when the money in your bank account reflects a thriving market.

When the earnings are good and interest rates are low, people often overextend themselves financially. They’ll buy houses that are too expensive or add to their shortterm debt, confident they can pay it off.

However, when the economy turns, inflation goes up, as do interest rates, and debt repayment becomes more difficult as cash flow tightens. If you’re on a salary, you may be able to scrape by — drawing the purse strings and cutting down on discretionary spending.

But, if your income is commission-based only and you see sales drop, things could get a little hairy if you’re not prepared financially.

So, what does financial preparedness look like?

Hannah McQueen, strategic coach, Director, and Founder of enable.me hosts a workshop at REINZ’s NZRE conference where she shares what’s required to be financially prepared for economic headwinds when you’re on an inconsistent income.

Hannah shares key strategies on how to become financially resilient. Resilience refers to the ability to withstand adversity and bounce back from difficult life events. So, when it comes to our finances, resilience refers to being able to withstand an economic downturn or loss of income for a prolonged period.

But Kiwis are not great when it comes to financial resilience. According to the Financial Services Council New Zealand, most employed New Zealanders have less than six months’ worth of expenses saved.

So, what can you do to build your financial resilience?

Build your buffer

As above, your buffer should be about six months’ worth of expenses to get you through times when you may not be earning money. This buffer will help prevent you from going into debt and tracking backwards. It doesn’t necessarily need to sit in a savings account. It just needs to be accessible at short notice.

Have the right systems in place

When times are good, you need to be disciplined so you don’t overspend but rather put money away for those times when income is a little tight.

For those who may have some trouble with this, you could try a zero-sum budget. With this method, every single dollar of your income is allocated — including money that’s allocated to saving and paying off debt.

For this to work, you need to know your baseline expenses, how much spending money you’ll allow yourself, and how much you’ll put towards investments or savings.

For those months that you earn more than this base, you can use that extra money to build your buffer or pay off any debt more aggressively to alleviate the pressure during those months your income isn’t quite as high.

Understand your money personality and tendencies

Are you a shopper or a saver? It is important to get a deeper understanding of why you spend your money the way you do. Once you understand those tendencies, you can use them to your advantage.

If you’re a spender, for example, could you redirect money from buying a new suit or shoes to paying down your mortgage faster? If you’re a saver, could the money in the bank be redirected into an investment that will give you greater returns (and ensure your money doesn’t get devalued through inflation). Of course, doing this all on your own can feel daunting. This is where a financial coach comes in handy. They can help you determine where you’re at now and what your capabilities are to set up a plan to help you build your financial resilience, grow your wealth, and help you weather any headwinds.

To dive deeper into how you can best manage your money when you’re on commission only, book a consultation with an enable.me coach today at enable.me/book-a-consultation.

Hannah McQueen, Founder, enable.me