How Financially Fragile or Anti-Fragile are you??

The term financial fragility or anti-fragility is used to determine how your life, family, or business will be affected if you suddenly experienced a significant change in economic situation. Take for instance, if you lost 20% of your income, will you be severely affected, will you be okay, or will you thrive? What if you lost 50% of your income, how will that affect your life? What if you lost your job for six months? What if the stock market goes down by 40% tomorrow? What if property values evaporate next year? Life is unpredictable, financial anti-fragility is a way of preparing your finances to actually thrive and get better when economic downturn occurs while others wither.

7 Steps to becoming Financially Anti-Fragile.

1. Reducing your expenses: At the beginning of your quest to becoming financially anti-fragile, the first thing you could control and the easiest thing to do is to reduce your expenses. There are several high income individuals such as Doctors and Engineers that are more financially fragile than low income individuals such as Customer Service Reps and Janitors. These high income individuals have no control of their expenses, they live in the biggest house, drive the most expensive vehicles, kids go to the most expensive schools, wear the most expensive clothes, all on borrowed money. I met a lady last week that earn $300K a year and is filing for bankruptcy.

2. Increase your Income: This is probably the hardest for most people to do. Most people are employees of a big company and your wages are typically set for periods at a time. However, for self employed people and business owner, you can do more marketing or set higher goals to increase your income on your path to anti-fragility. For employees of companies, you can seek to become an intrapreneur i.e. start a small enterprise while you are still employed at your company. Perhaps become a consultant or invest in income producing Real Estate.

3. Eliminate consumer debt (including personal home mortgage): This is probably the biggest enemy of anti-fragility. Personal debt is what drives most people to bankruptcy. Low and High income individual, companies, and even governments that have significant amount of debt become extremely fragile to economic situations. There is no way around this. Reducing your debts reduces your fragility and increases your anti-fragility. When you have little or no debts, you can take advantage of economic gyrations to improve your financial situation.

4. Save & Invest: This goes in line with the first 3 steps. Having savings help weather the economic storm and also helps thrive during the storm. Investing helps boost our savings by making our money work for us. An individual without savings will almost assuredly go into debt during economic storms, this also applies to a company that loses its biggest client without any savings. This is a very important step of becoming financially anti-fragile. According to a survey of financial advisors, the most important part of being financially independent is not the rate of return or the fees you pay or any of that, the most important part to becoming financially independent is actually Just saving and investing, just doing it.

5. Create Passive Income: The creation of passive income is what will allow you to get out of the rat race. This is what helps you retire. This is what gives you the flexibility to pursue your dreams. This is what gives you the ability to be anti-fragile and take advantage of economic gyrations. Buying properties that create massive cash flow is the easiest way to create long-lasting passive income. This is the method employed by over 70% of the world millionaires. Don't underestimate the creation of passive income. Savings alone will not get you there, it is what you do with the savings that will get you there. Create Passive Income by buying income producing properties.

6. Diversify & Create Multiple Streams of Income: Diversification is real and necessary to becoming anti-fragile. Diversification and creating multiple streams of income helps to prevent from catastrophe during periods of economic gyrations. More importantly, diversification helps you take advantage of economic gyrations. Creating multiple streams of income is a necessity in becoming financially anti-fragile.

7. Entrepreneurship: The last step of becoming anti-fragile is engaging in some form of entrepreneurship. This is what I call the "Me inc." or "You inc." You are a business, everyone is a business and you have to invest in yourself like you are a business. There was a British study that came out a few years back that purports that a Taxi cab driver is more anti-fragile than a bank manager, because the Taxi cab driver has access to information that can only be derived from entrepreneurship. As an entrepreneur, you have a better understanding of your marketplace, you know when to switch markets, when to advertise more, when to save, when to capitalize on certain market movement. However, an employee does not have access to such information. Over-dependence on a salary or outside help increases your financial fragility.

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