Britons Need to Improve Their Financial Resilience – Here’s How They Can Do It

According to the Telegraph, Britons are among the world’s worst retirement savers. A report from 2013, backed by data from HSBC, found that whilst “the average retirement in the UK is expected to last 19 years… the average person’s retirement savings will last for just seven.”

That’s a tremendous gap. And it’s indicative of an even larger issue that afflicts millions of British households: poor financial resilience.

What can Britons do to improve their financial resilience and ensure they’re prepared for whatever the future might bring — be it job loss, inability to work due to health issues, or other sources of unexpected financial hardship?

To start with, they can make these basic strides. Here’s what you can do to redouble your personal or familial resilience. Don’t worry: there’s far less sacrifice required than you might think.

Understand How Credit Works

First off, learn the basics of credit: how it works, why it matters, and what you can do to improve your credit profile. You’ll want to understand the credit reference agencies that wield enormous power over your credit score — in the UK, they’re Call Credit, Experian, and Equifax. You’ll also want to understand the general components of a credit score, such as:

• Credit utilisation
• Age of accounts
• Delinquencies or adverse marks
• Credit inquiries

And more. If you’re confused about where to start, speak with a financial professional.

Use Credit Sparingly, But Effectively

For better or worse, credit makes the world go round. Unless you have an independent source of wealth, you’re likely to rely on loans to purchase a car, buy a house, or launch a new business enterprise. You’ll likely use credit cards to make day to day purchases, as well. Taking out credit — whether via instalment loan or revolving line, such as a credit card — ought not be seen to count against your financial resilience or independence.

Nevertheless, it’s important not to overextend yourself. Watch your credit utilisation ratio carefully. If it ranges too high, your credit score could suffer, with far-ranging adverse consequences. It’s better to begin cutting back on discretionary purchases before reaching this point.

Begin Investing Early

As any investment adviser will tell you, investing earlier in life increases the chances that you’ll benefit from compound interest. The rub is that earning power tends to be lower earlier in life. It’s more important that you save something — however meagre — than that you try to match pounds with your older, wealthier peers.

Set Manageable Savings and Investing Goals

Guide your early saving and investing by setting manageable goals. For instance, you might resolve to set aside £100 per month from your paycheque — or £50, or £200, whatever you can afford at the moment. Adjust these goals as circumstances dictate, and reward yourself for sticking to them.

Set Aside Funds for Emergencies and Unexpected Eventualities

By definition, the unexpected strikes when you’re least prepared. Setting aside an emergency reserve fund can dramatically improve your financial resilience without permanently hampering your spending, saving, or investing power. Aim for at least three months’ pay, but aspire to six.

Know What to Prioritise in Emergencies

Create an emergency financial plan that you can quickly and decisively implement during a legitimate financial emergency — sudden job loss, a serious illness in the family, a major auto accident. This plan should prioritise non-essential spending and help you focus on the most important outlays during an extended period of low earnings.

Lay Out a Long-Term Financial Vision

Know where you want to be in three, five, ten years. Set discrete goals, separate from your saving and investing goals, and stick with them.

Reduce Wasteful or Non-Essential Spending

That daily latte or extra evening pint aren’t doing you any good. And that’s just the start: you can probably identify a dozen wasteful or non-essential line items in your budget. Root those out and put the proceeds toward something useful, like your retirement.

Remember to Enjoy Life

Lastly, don’t forget to stop and smell the roses every once in a while. Seriously — people who lead fulfilling, low-stress lives tend to live longer and remain happier than those who get bogged down in the details.

So, wherever your finances lead you, remember to enjoy the journey. You only get one.