A wise man once said: ‘the only constant in life is change’. Of course, a part of change is uncertainty. While you may not be able to prevent yourself from all forms of uncertainty, you can surely prepare well in advance for any kind of financial uncertainty that may occur in the future.
Similar to an emergency fund, an uncertainty fund is a sum set aside to meet life’s unexpected occurrences. This will help you rest easy, safe in the knowledge that you’re catering for every eventuality.
Appropriate risk management is usually best achieved by establishing suitable insurances. This offers you peace of mind and means you can sleep-easier at night.
This could be by creating a buffer to absorb some of the shock of any changes. This could mean that if you’re working towards a saving or investing goal, why not add a buffer of an extra 10%? For example, if you have a goal to accumulate $10,000 for something important to you, why not aim for $11,000? – That way, if the unexpected occurs (such as the price goes up before you’ve amassed enough) you already have enough to meet the new price. Better still, if the price or expense remains the same, you’ll either reach your goal sooner or have funds left over!
Think about it like this:
This means you need to diversify your overall portfolio of investments across a broad mix of asset classes and locations.
As a snapshot of change, it’s worth noting that just in the last few months New Zealanders have been subject to the following major financial changes:
No doubt, there are more changes to come. In addition to the examples above, another thing you can’t change is the rate of inflation, which steadily reduces the value of every dollar you have. No-one can predict the inflation rate over the next 15 or so years, which can have a big impact on your financial goals.
Knowing the difference between the things you can control and the things you can’t is critical to manage financial uncertainty. Focussing on what you can’t control often takes our energy and attention away from what you can control. To get the best results in anything, your focus needs to remain on what you can influence, which is usually the ‘input’, such as how much you contribute to investments.
Let’s recap with the top five ways to deal with financial uncertainty: