The empty part of the glass

While contemplating what to write about this month, my thoughts have taken me in many directions but they all seem to come back to the current predicament we find ourselves in during this war that is impacting on so many people.  I’d love to be able to write about something else, but my individual and national consciousness just won’t let me.

Last month I wrote an article entitled “How full is that glass?”, in which I explained how I’d rather live as an optimist. I shared my opinion that generally the worst-case scenarios do not play out as predicted, and the things that we don’t predict are the events that leave us blindsided, wondering what ran us over. So while I would still rather live as an optimist (and I believe that it’s the right approach for most people) I want to talk a little about the other side of the coin, for those who are more pessimistic by nature, about how to mitigate the major risks we are facing as individuals from a personal financial perspective given the current events.

Although virtually everyone would like to ensure their financial security and protect their wealth in the long term, we need to face the fact that there is no way to protect against all eventualities. According to the Williams Group Wealth Consultancy, 70% of wealthy families lose their wealth by the second generation, and 90%, yes 90%, by the third. There are steps that families can take to maintain their wealth over generations, but I don’t want to go in that direction in this article.  I want to focus on what we can do to get through this difficult period of time and prepare for possible worst-case scenarios that could face us going forward.

How can we survive uncertainty, in our employment, our residency, our cashflow, and even our country’s long-term stability?

Create reserves 

Reducing spending, which naturally occurs during periods of uncertainty, will help you to create a positive savings rate and build up your emergency reserves.  In the past, when I used to suggest to people that they should have the equivalent of 6 months of expenditure in their emergency reserves, I would see some eyes rolling with a lack of understanding of the importance.  After recent events, including forcing more than 130,000 residents of Israel to be uprooted from their homes, entire industries impacted including the construction, tourism and shipping sectors, there is a general recognition that emergency reserves are critical.

Reduce debt

When times are good, economies expand, opportunities abound and people take out more debt, relying on their increasing earning power and employment possibilities.  When the opposite happens and times are challenging, economies start contracting as risk rises. If you are fortunate and have a job or savings, take the opportunity to reduce your debt. By doing so you will save considerably on high interest rates and reducing your monthly payments, which can help you reduce your economic monthly footprint and financial commitments.

Diversify your income sources and invest in your future

This is something we started giving more attention to when corona entered our lives. Most of us work in a specific field, and are often dependent on the fluctuations within that sector. By increasing your knowledge and skills within your specific field you will become more ‘marketable’. Explore ways to develop passive or secondary income from within your area of expertise. Invest in your future by improving your knowledge, skills, and marketability that can help you to develop new income sources.  Diversify and expand your income sources, thus protecting yourself if one of your income sources dries up.

Evaluate your investments

If you have an investment portfolio and are very stressed by the situation, you may want to contemplate changing its composition. Ways to do that could include diversifying your investments to spread the risk, and possibly reducing your risk profile. Whereas that might mean a potentially less profitable portfolio in the long run, it could well be worthwhile if it will help you sleep better at night.

Create diversity in the location of your assets

You might also want to consider opening a foreign investment or bank account where you can hold some of your savings abroad, if you don’t have one currently. If you have been researching crypto currencies as an investment option (investor beware of the intrinsic risks involved), you can save them in a cold wallet, which is generally considered one of the most secure ways to store cryptocurrencies, as it keeps your private keys and funds offline, away from potential online threats. Whereas hot wallets offer easy access for quick transactions, they are a potential security risk. The cold wallet might be less convenient for frequent trading but it may give you peace of mind, enabling you to access money from wherever you are located.

Portable wealth ie gold, precious metals or jewelry have been a ‘go to’ throughout the generations when people were looking for tangible security. However, whereas they might allow you easier access to your money from wherever you might be, they also open you up to theft as they are relatively easy to steal.

Personalize your plan

Not only is everyone’s financial situation unique, but also each individual’s temperament and coping mechanisms need to be put into the equation. Look at your individual circumstances before considering any change. If the stress of the situation is impacting you, and you think the above options might alleviate some of the pressure you are feeling, you may want to contemplate implementing some changes.

With heartfelt prayers for the safe return of all the hostages, the safety of our soldiers in all their missions, a speedy recovery for those injured, security, peace of mind and financial stability for all.

If your finances have been affected by the war, we would like to do our best to help you regain financial clarity, be aware of what aid you may be entitled to, and help you structure your finances going forward in these uncertain times.
If you think we can help you, please email or call 02-991-0029 to arrange a convenient time for a free, brief consultation with one of our financial professionals.