Consumer Corner: How financially resilient are you?

From mortgage protection insurance to borrowing wisely, here's some tips to create more economic security

Consumer Corner: “Financial resilience is the ability to weather the events and challenges which life throws our way, particularly those that impact your income or assets."

Being resilient is a great trait. It can come in handy in all walks of life. Being financially resilient is also important. What this means is having financial security in place which will help overcome things like the loss of a job or even an economic recession. It also means doing the right things when it comes to your finances such as saving, paying off your debts, planning, budgeting and even things like avoiding gamblin, asking your boss for a raise and using your credit card too often.

A survey by Peopl Insurance found that almost half of the Irish public would need to access some form of credit to cover the cost of a sudden but essential €3,000 bill.

Paul Walsh CEO of Peopl Insurance: “The findings paint a worrying picture of the financial vulnerability of a large part of the Irish public at a time when rising living costs are squeezing so many households across the country. This is why it is so important to be financially resilient.”

Mr Walsh advises first and foremost that people should save early. He said the earlier you start to save up regularly, the better.

“If you are struggling to save regularly, boost the amount you can save by cutting back on luxuries and leading a cheaper lifestyle. Many find that a great way to instil a savings habit is to set up a monthly direct debit or standing order into a savings account from your main bank or credit union account.”

COVERING THE UNEXPECTED

He also said earning more means that you are more likely you are to have the savings to cover an unexpected expense. This is all very well but he said there are ways you can help to do this.

“If you’re in a low-paid job, consider a career or job change, even if it involves upskilling or returning to study. Ask your boss for a raise but do your homework so you can argue your case. Be sure you are claiming all the tax reliefs and credits you’re entitled to as well as all the social welfare you are eligible for.”

“While it’s important to be in a job that you enjoy, a permanent full-time job will usually put you in a stronger financial position than casual, freelance or contract work.”

It is important to always have an emergency fund and you can do this by setting aside some savings to tide you over at times of emergency, unforeseen problems, or when income is unexpectedly low.

“Things can go wrong at a moment’s notice as we all quickly learned during the Covid-19 crisis. The easiest way to build up an emergency fund is to do so through a long-term savings account which you cannot access easily,” said Mr Walsh.

Also it is important to limit your borrowings and borrow wisely when you need to. Try to avoid moneylenders and shop around for the cheapest and fairest loan when you need to borrow money.

“Don’t borrow to fund a lavish lifestyle, borrow sensibly such as to buy a house or car rather than to raise money for a round-the-world trip.”

“Don’t borrow excessively. Don’t gamble. Don’t overspend. Don’t rely on credit cards to fund a lavish lifestyle. Don’t bury your head in the sand if you have debt problems. Tackle any debt problems you run into early on. There are options out there for people struggling with debt. Lenders will often work with you if you’ve run into trouble with your mortgage for example,” said Mr Walsh.

MAKING SURE YOU'RE SET

Mark Reilly, Pension Proposition Lead at Royal London Ireland said making sure you are financially resilient is all the more important during a cost of living crisis.

“Prolonged inflation, such as that experienced in Ireland for almost a year-and-a-half now, takes a huge toll on people’s day-to-day finances.”

“Financial resilience is the ability to weather the events and challenges which life throws our way, particularly those that impact your income or assets. This is why it is so important, when possible, to save money regularly. It is by saving regularly, and from an early stage, that you will build up a financial cushion.

“Having a financial cushion to fall back on when times are tough will help you to keep your head above water. The most tax-efficient way to save money regularly for the long term is to save into a pension. Many people are living longer and healthier lives today than has been the case in the past. This means they need to have more of a nest egg in the wings in retirement than previous generations who didn’t enjoy such longevity otherwise they could struggle to make ends meet.”

Other products that can help too are mortgage protection insurance, that repays your mortgage in the event that you or your partner die before the mortgage is paid off and life assurance, which pays a lump sum to your family or dependents in the event of your death, will help provide financial security to your loved ones in the event of your death.