Building Financial Resilience

I have been reading an interesting treatise entitled “The Collapse Gap” by Dimitry Orlov.  Although I think Orlov’s main premise, or an impending collapse of the United States, is too pessimistic, I think he makes some sound points analyzing systemic weakness in the financial system.  In particular, in a drive toward efficiency (and high profits) a number of features of our day-to-day living seem to argue for risks should something go wrong, such as a power outage or breakdown of the transport system.  This broad systemic weakness can also be brought down to the household level, where the spending patterns of most households make it more vulnerable in the face of problems.  As Orlov points out, stemming the ability for failures to cascade is critical and helps to build resilience. Here are some potential steps for increasing your own financial resilience:

–Learn alternative skills- the increased specialization that the job market requires means that a lot of people are unable to switch jobs, switch industries, or start their own business.  Try learning about other professions, taking skills building classes while on the job, or helping out a friend with a start-up enterprise.  All of this skill building might be useful in this uncertain economy.

–Save a larger than expected emergency fund – almost everyone is on the emergency fund band wagon, appreciating the importance of having a fund in case of an unanticipated layoff, or surprise expenses. With uncertainty increasing and longer intervals for a job search, the best way to improve resiliency is to have a larger cushion.

–Have a worst case scenario budget plan in place – by having a bare bones budget in place, this can help to prevent the paralyzing shock should a layoff or emergency crop up.  For this bare bones budget, seriously examine what is really needed. This exercise is a great exercise in resiliency awareness.

–Develop a strong support network — in hearing tales of the Great Depression (of the 1930′s), the thing that struck me most was the generosity of those with very little themselves.  Food was often shared among families and bartered for greater diversity.  While there are many who emphasize a notion of community, we have shifted a long way from the neighborhood and multi-generational networks of the past.  Hopefully, a stronger embrace of community building will be a lingering after-effect of this recession.

shared at this week’s Carnival of Personal Finance