Executive Summary
- Treat your household as a business enterprise; the rules for financial resilience are the same
- The 5 Rules of Financial Resilience
- Eliminating vulnerabilities
- Focusing on value creating and income diversification
- The number of options for increasing your financial resilience is much larger than you likely expect. Your challenge is first truly understanding this, and then having the courage to see a few of them through.
If you have not yet read Don’t Worry, Be Resilient available free to all readers, please click here to read it first.
In Part I, we sought to understand what financial resilience means, and found that reliance on debt for consumption and on speculation for collateral, and an inflexible, high cost basis were the characteristics of fragile finances for households, enterprises, and nations.
In Part II, we ask the question, what are the characteristics of a financially resilient household? What strategies can we pursue to increase the resilience of our own households?
The Household as an Enterprise
As a self-employed entrepreneur, it's second nature for me to look at every entity as an enterprise: individuals, households, community groups, cities, and nations. Every entity has a balance sheet of assets and liabilities, and a profit-and-loss statement of revenue and expenses. Some assets and liabilities are financial; others are less quantifiable — for example, the proximity of good public schools. But in all cases, a tally of income and expenses and assets and liabilities can be made.
In terms of resilience, what strikes me is how few people think of their households as an enterprise. Compartmentalization is, of course, a common feature of modern life, and it seems there is a cultural tendency to nurture an entrepreneurial mindset in the workplace and a consumerist one at home, with little crossover.
In my view, the easiest way to build financial resilience in the household is to borrow all of the elements that make an enterprise resilient. These include:
1.
by thebrewer