When the world is unpredictable, it can be easy to feel anxious. Everything from climate and politics to the economy and household pressures can cause understandable concern.
But uncertainty needn’t be feared… if you’re prepared.
Financial resilience is about exactly that – building contingencies and adaptability into your plans from the outset to give you confidence in your financial security, whatever happens in the wider world.
Key takeaways
- Resilience isn’t the opposite of growth; it’s what allows families to stay invested and make good decisions.
- Liquidity, insurance, diversification, and governance all matter.
- Cybersecurity and personal security are now a key part of wealth planning.
Keep reading for a look at some of the uncertainty you might be facing and how the five building blocks of financial resilience could help to increase your preparedness, reduce emotional pressures, and put you back in control.
5 building blocks of financial resilience
1. Cash reserves
The unexpected can strike at any time, and when it does, you’ll want to know you have funds available to pay essential bills and tide you over. That means having liquid assets, usually cash reserves, that can be easily accessed in an emergency.
Many planners suggest holding around three to six months of essential expenditureto cover the unexpected, although the right level depends on personal circumstances.
Keeping track of the amount you hold in your rainy-day fund helps to ensure it remains fit for purpose if your circumstances change. As well as making sure you hold enough cash, be wary of holding too much during periods of high inflation when your emergency fund’s spending power could decrease.
2. Protection
Protection policies are key to your overall financial resilience and should be the foundation on which your long-term plan is built.
As a high earner, any break in your income will be significant. Executive income protection can sometimes be structured to reflect senior remuneration packages more closely than standard cover, subject to policy terms and limits.
Critical illness cover can also help to replace income lost due to illness, while life insurance plans give you peace of mind that your family will be looked after – and retain their financial resilience – should the worst happen to you.
3. Diversified portfolios
The so-called “Magnificent Seven” have dominated the S&P 500 in recent years, but their performance has been mixed. Some commentators have raised questions about whether valuations in parts of the AI-related market have become stretched.
This highlights how overreliance on any one asset class, sector, or geographical region can lead to a disproportionate drop in your overall portfolio. This is multiplied when large sums are involved.
Diversifying spreads investment risk, and constant reviews ensure that your portfolio remains aligned with your risk profile as real-world changes occur. A significant drop in one area will hopefully be offset by a rise in another, maintaining strong overall performance.
4. Estate documents
Family governance – whether strictly defined or more broadly underpinned by shared values and goals – can help to ensure financial resilience throughout your household and across generations.
One of the simplest ways to build this resilience is through having the necessary documents in place. This might include a business succession plan or a family charter, but, at its most basic level, it will likely take the form of a will and a Lasting Power of Attorney (LPA).
When communicated effectively, the contents of a will can help to ensure that, on death, your wealth is distributed in line with your wishes and that those wishes are understood. An LPA, meanwhile, safeguards you and your finances if you become incapacitated.
5. Cyber hygiene
The rise of AI is also impacting cybercrime and increasing the need for resilient online security. That means strong passwords, two-factor authentication as standard, and constant education as scams evolve.
Increased use of AI among fraudsters – to clone websites or impersonate trusted individuals – means that scams are increasingly hard to spot. Criminals might target you, your family, or your business, and as a high net worth individual, the consequences of falling victim could be significant.
Remember that scammers will try to catch you off guard, so remain vigilant, know the red flags to look out for, and always take a step back before acting.
Get in touch
Financial resilience isn’t about being risk-averse or stemming growth. It’s a series of sensible steps that protect your wealth and help you to make the right decisions. Liquidity, insurance, diversification, and cybersecurity all matter.
Having a plan in place allows you to ask some important questions, like:
- What future events might disrupt my family’s financial plans?
- How quickly could my plans adapt if circumstances changed?
- Do I have the liquidity to keep my options open and avoid forced decisions?
Resilient families are better placed to stay calm in the face of uncertainty.
So, if you have any questions about building financial resilience to give you and your family peace of mind, get in touch with HFMC Wealth today. Contact us online or call 020 7400 4700 today to help plan your loved ones’ financial future.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, or tax planning.
