Uncertainty is something we have to contend with no matter what environment we’re in,
whether we’re living through a pandemic, handling the results of an election, or managing an
unexpected event in our personal lives. Uncertainty can also become the biggest factor
influencing how we spend and save our money. Even in times of stability, past experiences
with uncertainty can color how we approach financial planning and the things we prepare for,
making regular efforts to build financial resilience imperative.
The truth is that we never know what will happen next in our lives. So how can we build
resilience into our financial approach to cope with any uncertainty? And how can we deal with
unexpected events as they pop up?
In this post we’ll discuss the fear or scarcity mindset, how to make financial decisions more
confidently despite feeling uncertain, and which resources you can lean on to help you align
your values with your financial goals.
Responding to Uncertainty
We all respond to uncertainty differently. Some people may become overwhelmed, others may
retreat or become defensive to protect themselves, and some may simply accept it and move
on to what’s next.
During these times, many people are driven financially by a scarcity mindset, which is
motivated by fear. In this mode, it’s easy to send ourselves down a deficiency spiral: We
convince ourselves that we don’t have enough money, we’ll never have enough money, and
everyone else has more money than us. Thinking this way can keep us in an overly defensive
position – and it can make our worlds small by keeping us from making reasonable bets or
risks that might enhance our lives, whether that’s something as simple as taking a dream
vacation or something much bigger, such as starting a small business or enrolling in a college
program.
These decisions don’t have to be daunting. An alternative to functioning based on scarcity is to
operate from a place of abundance, knowledge, and awareness. With this mindset, you can be
realistic about the money you have while honoring your values and acknowledging the fears
you have about taking a leap.
Get Comfortable with 'What If?'
How can we make decisions based on the possibilities available to us rather than the fears
holding us back?
Believe it or not, when thinking about making a reasonable bet or taking a risk, it can help to
start by pinpointing the worst thing that can happen as a result. This exercise can help you
conceptualize potential outcomes to ground your decision-making and assess whether any
fear of risk is warranted. This practice can also help you make a game plan for how you could
react if things do go wrong.
Often, the worst case could be much less drastic than what you expect. For example, if you
start a business and it fails in the first year, what would be the worst-case outcome? Maybe
you would have to go back to a job similar to the one you left; maybe you would have less
savings than you had before. But if the outcome is not a detriment to your financial situation, it
may be worth taking the risk.
“Thinking about the worst-case scenario helps you put a scenario into context and make it feel a bit more real. It’s about taking back the power and knowing what you can do versus feeling like you’re out of control when you deal with uncertainty and have no ability to fix a decision or move forward.”
Reconnecting with Your Values
No matter what’s happening around you, it’s important to reconnect with your values to get a
clear sense of what is important or relevant to your own situation rather than getting distracted
by the broader economic or political context. Recognizing our personal values helps us build a
foundation to realize what areas we find important and where we want to invest our money
accordingly. For example, a change in career path may be important to someone who values
advancing a skill set they didn’t previously have, or building connections with others might be
the most valuable thing to someone who spends much of their disposable income on dinners
out.
This exercise can help reduce the voice in our heads that compares us to everyone around us
– how you choose to spend your money will be different from how someone else chooses to. It
can also allow you to better understand your vision for your life and how you want to fulfill it.
Tangible Approaches that Build Financial Resilience
Of course, some objective actions can help us feel more resilient financially in times of
uncertainty, such as having an adequate amount of savings in the bank. That number will be
different for everyone based on their circumstances, but defining what you have and what you
need will help you work toward your vision.
“Figuring out the right balance of savings and risk and making sure you have what you need is a powerful way to help you ride the waves of what might happen financially.”
Another tangible way to build resilience is to make sure you’re protected from an insurance
and legal perspective. Ask yourself: If something happens, are your family members or the
people close to you protected as much as you can reasonably protect them? Do you have the
right types of legal documentation in place? Do you have the right types of health, life, or
disability insurance? Tangible actions like these can provide you with the backup you need to
face off with uncertainty.
Build Your Support System
Most importantly, combine these tangible actions with a mindset of understanding that allows
you to accept uncertainty and motivates you to adapt to any circumstance. Together, these
tools provide you with a much stronger support system.
“Having been through big changes myself, I can’t speak highly enough about having a bunch of different supports in place to help you.”
Supplementing your understanding of your finances with different types of support from family members, a financial planner, a therapist, or a coach can help equip you with the proper
knowledge you need to make the next move and the encouragement you need to actually
make it.
With all these tools, uncertainty can go from something that feels impossible to something that feels full of potential.
Jim is a financial advisor and owner of Thinking Big Financial, Inc. Thinking Big Financial is a fee-only registered investment advisor offering financial planning and investment management services. Specializing in working with the LGBTQ Community.
Please read my legal disclaimer here.