The Resilience Factor: How To Apply It To Improve Your Financial Life

Life is full of obstacles and adversities - some large, some small and others like the global pandemic have affected every facet of our lives. According to the latest research by the Financial Finesse Think Tank , the COVID-19 global pandemic has brought adverse effects to virtually every person’s  financial health, leading to an increase of stress and a decrease in financial wellness on a global scale. As a result, it is important for us to look after our finances and just as importantly, our mindset toward money.

Enter resilience. According to Karen Reivich, one of the leading psychologists in this field of study, resilience is the ability to bounce back from adversity and grow from challenges. Her research has demonstrated how cultivating and practicing resilience in your life can help overcome obstacles and allow you to thrive and live a more fulfilled and happy life. Here are some of the key resilience strategies that I’ve gleaned from her research and how you can apply them to improve your financial life.

Resilience Strategy #1: Remember Your ABCs

ABCs refer to the mental connection between experiencing A dversity, the set of B eliefs you have around that adversity, and the emotional and behavioral C onsequences of those beliefs. The takeaway is that by challenging your beliefs around specific adversities you can change the way you feel and behave towards them, which can lead to better decision making and outcomes. Here are 3 practical strategies to help challenge the beliefs about an adversity you are facing to help overcome it:

1)     Use evidence or discrete data to challenge your belief.

2)     Reframe the way you look at a situation. For example: “A more helpful way to see this is” or “A better way to see this is”…

3)     Plan: “If x happens I will y.”

Apply this to your finances to:

Increase financial literacy: Many of us at times can feel that we are not good at money so when we face a financial challenge we tend to withdraw and hope it will just go away or that someone else will deal with it for us. Use your ABCs to challenge that belief. Perhaps you can reframe that thinking and say, “I don’t know much about money, but I can and will learn.”  Taking that growth mindset can help you overcome the initial stress and tendency to withdraw so that you can meet that challenge head on.

Improve budgeting : Perhaps you have trouble budgeting and again just feel like it is something you aren’t good at and will never be able to do. Use your ABCs to challenge that belief.  Consider reframing that belief and instead thinking, “I just haven’t found the right budgeting approach for me, but I will” or plan by deciding that if a certain budgeting approach doesn’t work, you will try another. For example, some people like to budget using pen and paper, others like spreadsheets, and others use software programs. Here are some ideas to help find the right one for you.

Resilience Strategy #2: Leverage Optimism

Optimism is one of the most powerful tools that exists. To be optimistic is to have a belief in a positive future, be approach-oriented, see problems as a challenge not a threat, and have an ability to identify what can and cannot be controlled. The wonderful thing about optimism is that it is something that we can all learn and improve upon.

Apply this to your finances to:

Plan and save for retirement or other long term goals: If you have a tendency to avoid planning for the future, practice optimism to focus and envision a positive future and make it a challenge to map out what you need to do to get there. Start with running a retirement estimate like this to see where you stand. Then challenge yourself to increase savings. Consider using the retirement account contribution escalator in your workplace retirement plan to automatically increase savings over time. Here are some more things to know to help you plan and take purposeful action towards those long-term goals like retirement.

Resilience Strategy #3: Manage Catastrophic Thinking

Catastrophic thinking is the tendency to ruminate on the irrational worst-case outcomes of a situation. This type of thinking tends to generate intense anxiety and prevents us from taking purposeful action. In order to manage the anxiety caused by catastrophic thinking, take the following steps:

1 st Consider the worst case scenario

2 nd Consider the best case scenario

3 rd Consider the most probable scenario

4 th Take purposeful action

Apply this to your finances to:

Increase emergency savings : Perhaps there have been times where your energy has been depleted (ex. lack of sleep) and you are in an ambiguous situation (ex. inconsistent income picture). These circumstances can trigger catastrophic thinking like “I’m going to lose my job at any moment “ or “I’ll never find another job again and I will be financially ruined.”

Applying the strategy:

Worst case scenario: I will lose my job and have trouble finding work for a long time.

Best case scenario: I will keep my job, receive a promotion, an increase in salary and a bonus!

Probable scenario: I will keep my job, but there are risks that I can experience a reduction in hours/pay in the future.

Purposeful Action: Increase your emergency savings so that if you do experience a loss of income, you could sustain yourself until you get back on track.

Improve your investment approach: When the markets start acting up and you see your investments spiraling down, many of us can relate to the feeling of impending doom. Those thoughts can make you feel like you might lose all of your money if you don’t take drastic action. It is that feeling and pursuant action that tends to severely impede the average investor .

Applying the strategy:

Worst case scenario: I will lose all of my money.

Best case scenario: The markets will quickly turn around and continue to increase, and I will never see another market downturn.

Probable Scenario: Markets will go up and down in the short term, but over the long term, they will recover and continue to grow.

Purposeful action: When the markets get volatile, take a step back and review your investment strategy to ensure your investments are still aligned with your goals. If the answer is yes, then do nothing. If the answer is no, consider making the right adjustments.

Resilience Strategy #4: Practice Gratitude

Gratitude is the act of focusing on the goodness that is around you and on what you are receiving from it. People who cultivate gratitude into their life have better mental and physical health, have an increased ability to problem solve, and experience contentment.

Strategy: Consider journaling about gratitude daily. Try writing down at least 3 things a day and reflect on why you are grateful for those things.

Apply this to your finances to:

Control spending and Increase savings: Practicing gratitude will help you focus on the things you have and how they make you happy. This focus can help you get beyond instant gratification, which encourages you to save up for big purchases instead of pulling out your credit card. Consider using a spending plan like this one or saving for goals calculator to help you get there.

Practicing gratitude helps cultivate contentment, which can help you decouple feelings of happiness from buying more stuff or having more money ( the hedonic treadmill ). Experiencing contentment can increase the likeliness to save money for the long-term goals that will help you feel more fulfilled, in addition to helping you avoid impulse purchases that can break your budget.

Summing it all up

Life is full of constant obstacles and adversities of varying degrees. By practicing some of the key strategies of resilience, we can overcome those adversities to not only survive and get by but to thrive in our personal and financial lives.

By Juan Carlos Medina, Contributor