Ever gone to bed and your mind keeps rolling like an adding machine?
Last July, in America, 77% of people reported ‘feeling anxious about their financial situation.’
58% feel that finances control their lives. And 52% report difficulty controlling their money-related worries.
The worst sensation is when it feels like a financial situation could mess up your life. You see others around you happy. Looking forward to holidays. While you wait for resolution.
I’ve only experienced such worries once before. When a leaking property we owned in Europe looked to be very difficult to remedy, sell, or even rent out.
As a savvy legal friend advised me, that problem, like most, could be resolved. There is a process to things. And sometimes you’ve just got to go through that process.
I was anaesthetising the problem with half a bottle of wine a night at the time.
‘At least you got something out of it…’ she joked.
What I wanted to look at here is the process of becoming financially resilient. So you can be permanently free from the money worries mentioned.
After two decades in business, finance, and the global markets, here are my top suggestions. And how to put them in place.
The key is to build diverse income streams
Don’t just keep the wolf from the door. Have a few different doors.
Financial advisers will tell you to ‘build a savings buffer’. Enough to last six or 12 months.
Agreed. But this is just buying time.
If the job market is tough — as it is now in certain areas — fallback beyond savings could give more resilience.
Of course, it’s no easy feat to set up different income flows. It takes time. But here’s some top flow suggestions:
- Dividend-paying shares. Many large listed businesses have a history of sharing profits with owners. Based on reliable assets in the form of income-producing property or infrastructure.
- Maintain constant access to cheap finance. It’s great to pay off your mortgage. But there’s no harm in keeping an orbit facility going in case opportunity presents. Even better, is a brokerage account that provides you cash margin access at even lower interest rates.
- Positive cash-flow rental property. Harder to come by these days due to competition and overpriced local markets. But opportunities might come back once COVID wage subsidies and mortgage holidays go south.
- Side hustles. It doesn’t take an excess of cunning to turn an interest or skill into something that produces cash. From providing tuition to building a blog accepting advertising, you could squeeze open another income door.
- Make your property work. For most people, their home is their main expense. It’s not always comfortable, but by renting out a room — or even the whole house when you go on holiday — you could rake in thousands a year. And provide accommodation.
- Ensure a surplus so you can actually invest. The main reason most people don’t have a range of income doors is that they never had the chance to set them up in the first place. And the reason they never could was they were spending all they earned. You need to cut back your cost structure so you can ‘pay yourself first.’ And invest.
It’s in the good times that you need to take whatever surplus you can muster and throw some investment into some of these areas above. Then, when the bad times come, you’ve got options.
Holding gold and other hedging instruments
Richer investors often turn to gold to hedge their wealth in times of crisis.
But here’s one thing that scared me. During the March coronavirus panic-selling across the world’s stock exchanges, the gold price also fell.
Sure, it has bounced back now that there’s some sense of control. But, in mid-March, when fear overtook the markets, there was a real scramble for cash and liquidity.
And the realisation that when it comes to basic survival, gold may not be a ready means of exchange.
My own view is your best wealth hedge comes from investments across different countries, currencies, industries, and sectors.
If this country is hit with another major earthquake or the distinct likelihood of volcanic eruption, your wealth in Australian, British, or multinational companies may be spared.
If you’re a property guru and believe the only place ‘where things happen’ is Auckland, I’d also be questioning that strategy. This is a fine city. But it exists across a youthful volcanic field.
And when you consider the fundamentals of income multiples and rental margins, current prices do seem rather rich.
Protecting the wealth and income streams you’ve built
Finally, once you’ve built ownership in some productive assets, it’s wise to structure ownership to protect your haul from the rats of life.
Sadly, there are more and more people out there looking to take things that don’t belong to them. Things they’ve not worked for.
Such people exist in business, government, and even within families.
One of the best ways to mitigate your own personal ownership risk is to use separate legal structures. I’m talking companies and/or trusts.
And, again, some assets across different jurisdictions.
Like most things in life, financial resilience does not happen by accident. It takes work and planning. Financial education and savvy.
Money does not buy happiness in life. But it can help protect you from the wolves.
I almost missed the most important factor…
I’ve noticed, over the years, the people who tend to do well in business and with money tend to be kind.
They’re willing to help others. And have a reputation for doing so.
When you help other people open their doors, you’ll find the door is also open for you. At least more of the time.
The more doors open to you, the more financially resilient you and your family will be.
Editor, Wealth Morning
(This article is general in nature and should not be construed as any financial or investment advice. To obtain advice for your specific situation, please consult an Authorised Financial Adviser.)