Top 9 Ways To Improve Your (Financial) Resilience

Jake - Author/Founder

Jake - Author/Founder

Hi. I'm Jake. I believe you can build a wealthy life through frugal living and index investing.

Hi.  I link to books & products that I believe can help you improve financial literacy and build wealth. These are affiliate links, meaning I get a commission if you click the link and buy a product. You won’t find a book that I have not read, or a product that I don’t currently use. 

Do you want to improve resilience? I know I do. 

I’ve been less consistent than usual over the past two weeks. That triggered my thoughts about resilience and led to this article. 

Looking back, I’ve never been perfectly consistent with the gym, writing this blog, frugal living, or healthy eating. 

Slip-ups occur. That’s a fact. Sometimes moods are low, and motivation often disappears.  

Actions in these “tougher times” separate the successful from the mediocre. Anyone can hit the gym when they feel motivated, but it’s not realistic to feel this way all the time. 

Resilience is more than just your ability to pick yourself back up and carry on. It requires that you adapt and improve under hardship. 

Adaptation requires an interesting balance of self-compassion, accountability, humility, and grit. 

In this post, I discuss 9 ways to improve resilience, because it is needed to live a wealthy life.

A wealthy life is deeper than just finances. It’s about how to earn, save and invest in way that maximizes well-being. I write more about this in my ultimate guide on Money, Happiness, and Well-being. 

The first few tips to improve resilience are specific to management of your finances. The remaining tips are more general, and applicable across various domains in life. 

Table of Contents

What is Resilience?

The Hydra is an interesting mythological creature. When you cut off its head, two heads grew back. The Hydra becomes stronger under adversity.

The Hydra is resilient. 

This is different than being “robust”, something easily confused with resilience.

A robust person can absorb shocks, like a rubber ball. But in response to shocks, they don’t improve or get worse. They simply remain the same.

Robustness is great, but resilience goes one step further.

While a robust person stays the same under hardship, a resilient person improves in response to hardship. Resilience requires adaptation.

Examples of resilient systems include evolutionary systems where environmental stressors improve the species (at the cost of individuals). Lifting weights is another example, where muscles grow back stronger in response to stress in the gym.

You may wonder where these ideas come from. They are not my own. Rather, I am pulling together concepts from a few awesome books:

Resilience and Complexity

With interconnectedness increasing, the world is becoming more complex. A simple tweet can influence global markets, and some people become famous overnight.

Complex systems are more prone to shocks that can’t be predicted. These are called “Black Swan” events. 

As the world gets more complex, prediction becomes more difficult. Your ability to adapt is more important than ever. Being robust won’t cut it. You must be resilient. 

Resilience vs Self-Discipline

I already have a post on Self-Discipline: The key to Building Wealth. I don’t want to write about the same thing twice.

So, what’s the difference between self-discipline and resilience?

Self-discipline can help you endure shocks and move forward. That may make you robust, but it doesn’t result in self-improvement. You can be disciplined and have zero ability to adapt.

To be resilient, you must get better from failures or negative events. This requires three things:

  • Self-reflection;
  • Learning lessons.
  • Applying those lessons in the future.

Self-discipline is required for resilience, but it is not sufficient for resilience.

This is hard to explain. It’s best shown through an example. Let’s take a look at George who has self-discipline but no resilience. 

Example: Disciplined But Not Resilient

George is super disciplined. He has a solid gap between income and expenses, with a savings rate of 30%. But George has one problem. He has no emergency fund. 

George’s car breaks down. George sells $10k worth of stocks at a 25% loss in 2022 out of necessity to buy a new car. 

Unfortunately, the market rebounded after he cashed out of the market. 

Even though George sold for a loss, he did not give up on investing. He continued to save and invest, but he did not reflect and learn about the value of an emergency fund. 

George showed self-discipline by embracing hardship and continuing to invest, but he failed to be resilient. 

When a surprise expense comes up in a future bear market, George will have to dip into his investments at a loss. 

George is self-disciplined and robust. But he is not resilient.

1. Build Resilience With An Emergency Fund

Maybe your vehicle fails, the roof leaks or you need to book a last-minute flight to help a loved one in a bind.  The emergency fund is there to absorb such shocks. 

An emergency fund is a stash of cash, equal to at least 3 months’ worth of essential expenses. It’s a shock absorber for the unexpected. I discuss where you can hold your emergency fund in this post. 

The emergency fund makes you robust.  

I argue that the emergency fund goes one step further. It also makes you resilient.  

First, the emergency fund limits money stress, the #1 source of stress in the US and Canada. This frees up your capacity to focus on other areas of life. 

Second, the emergency fund can provide the buffer needed to take more employment risk. Therefore, it can reduce the dependence on your job and give you the room needed to job search. This improves the likelihood that you will have a job that brings well-being or an increase in income. 

Third, an emergency fund shields your investments so they can sit and compound in the background. Indirectly, the emergency fund helps you grow wealth. 

The emergency fund makes you resilient by reducing stress, protecting investment and improving job flexibility. 

2. Sustain A High Savings Rate

Your savings rate is the fraction of your after-tax income you you save. It’s a measure of the gap between your income and your expenses. 

This gap is one of the most important factors to grow wealth since it’s the financial fuel needed to progress through the steps of wealth: 

  • Pay down debt;
  • Build an emergency fund; or
  • Invest to grow wealth.

Similar to the emergency fund, a high savings rate makes you robust to the unexpected.

Consider the following events, some of which you may be familiar with: 

  • Inflation-fueled price increases. 
  • An increase in mortgage payment as interest rate risk materializes. 
  • Loss of an income source. 

A high savings rate gives you a buffer to absorb these negative shocks. That’s pretty obvious.

What is less obvious is how a high savings rate can even make you anti-fragile (resilient). It does so by allowing you to take advantage of opportunities.

As the market crashes, you can invest more aggressively to reap higher expected returns. Or, you can stash cash to buy a rental property when real-estate prices are depressed. 

Furthermore, a high savings rate can help you find a new job that suits you better, even if it pays a bit less at first. For example, a household that can cover expenses with a single earner provides flexibility to start a business. 

Finally, a high savings rate can lead to financial independence, where investment income covers your expenses. At this point, work is 100% optional, and that makes you more adaptable to jump on opportunities. 

Not only is a high savings rate critical for robustness, but it also makes you resilient. 

3. Set Realistic Investing Expectations

A 50% crash isn’t as bad when you are expecting it. But if you are not expecting it, you will experience a wave of emotions.

And emotions make people do stupid things, like panic-sell during market crashes. That’s a formula for loss. 

Emotional responses occur when there is a gap between expectations and reality. You are happy when reality outperforms your expectations and disappointed when reality underperforms your expectations. 

I believe realistic investing expectations can help keep you invested when times get tough.

It’s during these times when real money is made. Markets pay you to take on risk. Your risk tolerance is only tested when things get hard.  

A grasp of history, such as the Past 30 Years of Stock Market Returns, can help you set realistic investing expectations. When the market crash hits, you will expect it and are more likely to stay invested to build wealth.

Realistic expectations make you better.

4. Take Educated Risks And Embrace Failure

You are paid based on the value you can provide to individuals or an organization. This value stems from your ability to solve problems or entertain. 

If you never approach your limits, you will never fail. If you never fail, something is wrong. 

When you fail, I see only three options:

  • Evaluate yourself to get better (hard). 
  • Pick yourself up and move forward without reflection (hard). 
  • Quit (easy)

The times I’ve learned the most are the times when I have been the most uncomfortable.  

When you approach failure with resilience, you improve your skillsets with each failure. In turn, you improve your capacity to provide value to others, and that increases your Human Capital and future earnings power. 

5. Embrace Humility To Boost Resilience

To learn from failure, you must first acknowledge that you can improve. It takes humility to admit that you have an area to improve since it implies you have a deficiency. There is a gap between where you are and where you want to be.

Humility is a requirement for adaptation. Therefore, humility is necessary for resilience.

It is hard enough to admit a deficiency. But it’s even harder to take action to improve.  

To see why consider what happens when you set a concrete target for “where you want to be”. You give yourself clear criteria for success moving forward. This naturally gives you clear criteria for failure as well, and that enforces self-accountability. This is hard.

Here is a few examples of humility at play in personal finance:  

  • Assessing your budget through an Expense Audit, and finding that you overspend. Take future action to cut spending in that area, and reassessing your progress every month.  
  • You may have taken on too much risk and cashed out during a market crash. This implies that you took on too much risk during a market decline. 
  • It takes a form of humility to admit that it’s not worth your time trying to beat the market due to market efficiency, resulting in index investing. 
  • It’s also necessary for good leadership, as you often have to put your ego aside for the benefit of the group.

Humility and Confidence Can Co-Exist

At first glance, some humility may look like a lack of confidence. I argue the opposite. 

Humility is required for the ultimate form of confidence. 

Confidence in your ability to adapt is a superpower. When you trust in your resilience, you will have confidence when facing the unknown.

That allows you to push forward with confidence that you will “figure it out”. 

6. Approach Slip Ups With A Balance Of Compassion and Self-Discipline

No one is perfectly consistent. How you handle inconsistency is what defines success.

Expectations of perfection can be demoralizing. If you are too hard on yourself, you increase the probability of quitting, the only true failure.  

It’s important to be compassionate to slip-ups, but self-compassion also has its limits. 

Missing the gym once is cool. But missing the gym twice is not okay. Extreme self-compassion would result in missing the gym indefinitely, and gaining 50 pounds while you sit on the couch eating Cheetos. That’s not okay. 

Self-compassion must be balanced with standards to keep you on track. Eventually, you need to pick yourself back up and keep going. 

7. Do Hard Things

After a hard bike ride, water is very enjoyable and it’s very nice to sit still. 

But without hardship, water is boring, and sitting still sucks. 

The pleasure-pain balance is a critical concept in Anna Lembke’s book Dompamine Nation. 

Humans maintain an equilibrium balance between pleasure and pain. 

How would you feel if you won the lottery, bought a new car and upgraded to a bigger house?

At first, it will feel great. But a few months later you will revert back to your baseline level of happiness.

The pursuit of pleasure is futile. 

When you aim to make life easy, things that were once pleasurable become neutral, or even painful. This is why addicts have difficulty enjoying normal conversation, or even day-day work.

A life free from hardship makes you less able to endure hardship when it hits. This makes you less resilient and less robust.   

Andrew Huberman states that “Addiction is a progressive narrowing of the things that bring pleasure” and “happiness is an expansion of the things that bring pleasure”. 

Doing hard things shifts the balance to the pain side of the spectrum, expanding the array of things that bring you pleasure. 

Here are some of my favorite methods of introducing hardship into life:

  • Lifting weights and cycling. 
  • Writing this blog. 
  • Meditating. 
  • Cold Showers. 

Doing difficult things have two effects that improve resilience: 

  •  It makes more “boring” activities more pleasurable, like managing finances, index investing, writing, and socializing. 
  • It improves your capacity to endure hardship, which makes you more resilient. 

8. Meditate Daily

I meditate for 10-13 minutes per day and have been doing so for the past 3 years. At first, I thought it was a fad, but I can now say that is far from the truth. 

There is a reason that meditation has persisted over thousands of years, across many different cultures.

It improves mood, and focus and reduces stress.

The main task when meditating is to bring your wandering attention back to a point of focus. I use my breath as my anchor point. 

It trains your wandering mind to focus. Plus, it keeps you embedded in the present, rather than in the past or the future. Finally, it enhances self-awareness, something that is critical for self-reflection and improvement. 

A higher stress tolerance and a better capacity to focus make you more resilient. Finally, meditation improves resilience by increasing self-awareness which is necessary for adaptation

9. Embrace Simplicity

 To be resilient,  you need the capacity to reflect, learn and improve. That means you need some spare time and energy. 

And life can be jam-packed. Work, family, school, working out, and friends. You may feel that you have no time and energy left over. 

This is where frugal living comes in. It naturally results in a simple lifestyle that gives you the capacity for the important things in life. 

Index investing does something similar, permitting you to grow wealth in the background while you focus on the important things in life. 

The details are covered in the following posts: 

Frugal living and index investing free up your time and energy. This extra time and energy improve resilience. 

Conclusion

I’m glad you made it this far, and I hope you took away at least one item that you can apply to enhance your resilience. 

Resilience is hard, and heavily rooted in habits.

It’s critical to live a wealthy life. And it applies across the three pillars of financial wealth, to save, earn and invest in a way that brings well-being. 

What item did you find most applicable to improve resilience? Let me know in the comments below!

Jake out. 

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