Cost of living crisis demonstrates need for Britons to build their financial resilience

The impact of the cost of living crisis on the majority of Britons has demonstrated a need for Britons to build their financial resilience, according to national IFA Continuum

According to data released yesterday, charity Citizens Advice has already provided record levels of crisis support to Britons this year.

The charity had offered food bank referrals and other support to 159,360 people by the end of August this year, a rise of 16% year-on-year.

Continuum has also seen more clients than ever looking for ways to support loved ones who are struggling.

Richard Watkins, Chartered Financial Planner at Continuum, said: “The 21st century has seen major challenges on the financial stability of the western world, a global pandemic, war and climate crises, and we are not even a quarter of the way through. 

“We live in an unpredictable world, and one where financial resilience has become an essential component of our wellbeing. 

“Financial resilience is the ability for you and your family to control financial shocks, weather those economic and life challenges, provide options to tackle unexpected setbacks, and should form an essential component of your financial life plan.

“Financial resilience goes beyond financial stability, essential though that is. It includes the capacity to adapt and thrive in the face of adversity. It’s about being prepared for life’s uncertainties and having the resources to provide choices when faced with setbacks such as job loss, medical emergencies, or unexpected expenses. In essence, it’s woven into your financial plan for when life takes an unexpected turn.

“Financial resilience is not just about surviving tough times; it’s about maintaining a sense of control over your financial destiny and knowing that even if things go awry you have a way to get them back on track.”

One cornerstone of financial resilience is the building up of an emergency fund, a financial well that you can draw upon when needed. 

Life is full of surprises, and not all of them are pleasant. Whether it’s a sudden car repair, a medical bill, a job loss or some event that affects the entire economy, having an emergency fund in place can provide you with peace of mind and practical help.

An emergency fund might prevent you having to borrow or using credit cards to cover those unforeseen expenses. This can lead to a cycle of debt that becomes difficult to escape. 

In this way, an emergency fund can help you avoid unnecessary debt and its associated stress and unpleasant consequences.

Mr Watkins added: “Your emergency fund should be a reserve separate from your everyday current account to reduce the temptation to dip into it for non-emergencies. An instant access or seven day notice savings account is a great option, as it offers both accessibility and a return on your savings.

“Actually building an emergency fund requires discipline and commitment. There are after all plenty of other demands on your resources. But it is achievable if you take the right steps to get started.”

Top tips for building an emergency fund:

1.     Start small

Start with an amount that is easy to set aside and gradually make modest increases every few months. This works very well as it quickly becomes part of your normal expenditure and accumulates nicely over a short time period. 

We are currently advising clients to accumulate not less than 6 months of expenditure, some clients opting for 9-12 months, depending on their overheads. Over time, the amount you set aside can become a deep well and provide peace of mind. It’s important to start with what you can comfortably afford and you can increase your contributions over time, if circumstances allow. 

2.     Create a budget

Incorporate your savings into your monthly budget. Small contributions add up over time, especially if you make them automatic. Set up monthly transfers from your current account to your emergency fund. Treating your savings like a non-negotiable monthly bill ensures that you consistently contribute to your fund.

If you do dip into your emergency fund for a legitimate emergency, the ongoing savings regime will replenish it over time. 

3.     Choose the right savings medium

Having a reserve of cash used to be an expensive luxury when interest rates were so low that they hardly offered any return at all. Times have changed, and interest rates have risen to attractive levels.

Your emergency fund can work to help you grow your money – if you have it in the right account.

Not all banks and building societies are giving interest rate increases to savers quite as promptly as they charge them to borrowers.

A call to an independent financial adviser could help you find the most rewarding home for your emergency fund, and let you start growing your financial resilience faster.