How financially resilient are you?

Life can be full of unexpected events. A job loss, a sudden illness, damage to your home, the list goes on. So how can you make sure they don’t put you in financial peril.

A new report from Yorkshire Building Society (YBS) has found that the typical UK household is in a “broadly stable” financial position.

But crucially, it says many are vulnerable to future financial shocks.

And that means a sudden change in circumstances or a surprise expense could, in YBS’s words, “quickly shift them from a coping state to a crisis”.

So what can you do to make you more resilient in the face of financial shocks?

Build a rainy-day fund

Unexpected costs are usually expensive, so it’s well worth creating a rainy-day fund - a pot of money set aside for emergencies.

You’ll then be able to cover at least some of these costs without resorting to borrowing or dipping into savings.

A good goal is to have enough saved to cover around three months of your living costs - things like rent, bills, food, and transport. 

As YBS says: “Financial wellbeing tends to improve sharply when savings represent at least three months of essential expenses.”

Even putting away a small amount into your rainy-day fund regularly could make a big difference if or when you ever need it.

Make saving a habit

When everything seems so expensive, saving money might seem difficult or unrealistic right now.

But again, setting aside just a small sum regularly can pay off in the long run, especially if you put it in an account with a higher interest rate.

Imagine you move £1 into a savings account each day.

That’s £30 a month in savings - or £360 a year.

“We recognise that continued pressure on living costs means saving is difficult, and for some people may not currently be possible,” says Tina Hughes of YBS.

“Where people are able to put something aside, the findings show that even a modest buffer can make a difference over time.”

You could make the process even simpler by setting up a standing order so a small amount gets moved into savings after you get paid.

By making it automatic, you won’t even have to think about it.

We’ve put together some tips on how to build a savings habit to help you get started. 

Get on top of your budget

The YBS report found that financial wellbeing declined sharply when housing costs exceeded 40% of household income.

That’s a reminder of why it’s so important to understand how much of your income is going towards housing and essential bills.

If you know exactly how much money you’ve got coming in and where it’s going, you’ll be able to prioritise vital expenses and see where savings can be made.

Check our guide to how to create a budget.

Ask for debt advice

Debt is one of the biggest obstacles you can face if you’re trying to build financial resilience.

So if you’re feeling weighed down by debt, contact us for confidential, practical and impartial debt advice.