WHAT does it mean to be financially robust? Robustness means that you are able to withstand severe shocks.
A robust skyscraper will be able to withstand earthquakes and a financially robust person will be able to sustain his lifestyle, regardless of the disasters thrown at him.
Of course, you can imagine disasters that will financially cripple even the wealthiest person, but that’s not the point.
The point is to increase your robustness to the point at which only the most unlikely combinations of unlucky events would bring you down, but nothing else would.
Think of different “shocks”, such as being fired, high medical costs for you or your family, a car accident, a fire that consumes your house or a natural disaster.
How well would you be able to withstand those financial shocks?
Contrary to your intuition, robustness has less to do with strength, and more with flexibility. A rich person with an expensive lifestyle is more vulnerable to becoming poor, than a middle-income person with great flexibility.
As the great Kung Fu and Jeet Kune Do master Bruce Lee noticed: “You must be shapeless, formless, like water.
When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash.
This analogy helps drive the point that robustness means flexibility: the ability to quickly adjust to the changing (financial) environment around you.
So, how do you become financially robust?
Here are my favourite methods:
Double income. Whether it is a single person having 2 jobs, or a family in which both husband and wife have their own jobs, it is much less likely that you will lose both jobs at the same time. It’s even better if the jobs are in different companies and different industries.
Similarly, if you can create (multiple) passive income streams, such as ad revenues from your blog, dividend from stocks, interest from bonds, rent from a property you own, you once again become less susceptible to the whims of your boss and the performance of your company.
Speaking of investments: you are much more robust if your portfolio is diversified in terms of asset classes (stocks, bonds, deposits), currencies, industries and geographies.
Upskill yourself. If you can work in different fields, for example, sales and graphic design, or translation and transportation, you have diversified your income-earning options and reduced the risk of being unemployed.
Build a network while you don’t need it, to have one in place when you need it. This network could help you find alternative employment opportunities, introduce you to more clients, or anything else you may need, such as money, housing or training.
Keep your monthly expenses low compared to your income. This will allow you to sustain your lifestyle, even if your income takes a significant hit. Stop upgrading your spending every time you get a promotion and this will happen automatically!
Low fixed costs. Even if you have high monthly expenses, make sure only a small portion are so-called fixed costs.
These costs make you inflexible because you cannot easily reduce them quickly. Examples are rent/mortgage, utilities, debt payments and basic transport & groceries.
On the flip side, if a majority of your monthly expenses can be easily and quickly reduced without a major impact on your lifestyle, this will help a lot if you ever need to survive on a reduced income.
Think food stalls instead of Starbucks and KFC, LRT/MRT instead of Grab, house parties instead of bars, hiking instead of movies, and domestic day trips instead of trips abroad.
For future purchases, be biased towards items that have a shorter commitment period. For example, shy away from 24-month gym memberships, contracted phone plans, or even five-year installment plans when you buy furniture, household appliances or consumer electronics. They all make your expense side less flexible.
Have an emergency fund or a financial buffer. This allows you to keep calm should something happen, and gives you the time to carefully consider your options and choose the best course of action.
For example, you won’t have to accept the first job you find in case of a job loss, but you can wait to find a more suitable and better-paying one.
Have insurance, selectively. Be careful, avoid being over insured or double insured and you should not take insurance if you can take the financial hit yourself (because it will be cheaper in the long run), some basic forms of insurance, however, could help you become more robust against financial disasters, such as a fire in your home or an illness.
It goes without saying that (high) debt does not go well with the concept of robustness. Consider restructuring your personal loans and look for special offers from various banks.
There might be a possibility to lower your debt payments by consolidating your credit card debt and loans, to ensure you have more money available and lower fixed costs.
