Oran A Hall | The making of a personal finance hero

Financial heroes are resilient. Some build resilience from scarcity; others develop resilience to recover from financial disruption. It is not the quantum of money that people have that makes them heroes, but the quality of their decision-making and their determination to achieve their most important goals.

Resilience is the ability to make deliberate choices, protect a buffer, use support and opportunities wisely, and to keep moving towards goals despite limited money or a major setback.

Have you ever wondered how some people on relatively small incomes manage? I have. They are financial heroes. They are financial heroes, not because of their wealth, but because they take responsibility for the money they have, learn steadily, act creatively and consistently, and practise good money behaviours. Scarcity makes them resilient.

There are other finance heroes, who fit well into the class of earners, who are often classified as middle-income and perhaps high-income earners. Their experience is often very different from the low-income earner. They tend to have reasonable incomes, but fall into dire financial straits, not always of their making. Eventually, they take actions which put them on a solid footing.

The heroism starts with recognising that there is a problem, which amounts to a wake-up call, to then making a plan and taking action, sometimes painful, to restore financial health, and then sustain it. Although there may be setbacks, with discipline and sticking to the plan, transformation eventually comes. Their need to recover impels them to develop resilience.

The hero with limited means first recognises that there are limited financial means, makes a budget by orthodox or unorthodox means; sets clear priorities; eschews debt, which is hardly available anyway; saves, even if informally through means such as the partner plan; avoids waste; shops smartlly by shopping with a high sense of price sensitivity; gets the most out of assets; and produces items, like food, for personal consumption where possible.

Establishing and maintaining close relationships with others also helps. This opens the way for support from others, and is often matched by support to others. Good relations with others also opens the way for exchange of surpluses as necessary. A spirit of community carries a high premium.

Many families at the lower levels of the income scale stand out by the extent to which they achieve their goals, a significaant one being the education of their children. Sometimes they invest in the older children, who in turn help the younger ones, although this is not as strong as it used to be. Other times, they earn extra income, borrow, or delay other goals, and access benefits from the government if they qualify.

Emergence of crisis

Some people are born with wealth. Others acquire it over time. In the normal course of life, most people earn, spend, save, borrow and invest. Not everybody does these well; the accumulation of debt, for example, credit card debt, is the bane of many individuals. Sometimes they face a real crisis. The crisis may present itself as a loan application rejection, an emergency without savings, or insufficient funds to buy a house.

The emergence of a crisis often serves as a shocker, a wake-up call, for those who must take radical action to be on a sound financial footing. The first objective is recovery, which requires the elimination of debt, where debt is the scourge. This often requires changes in spending and attitudes to saving, for example.

To be personal financial heroes, people with low incomes, and people with better incomes who experience crisis, should do the following: know their values, income and spending patterns; set clear priorities, like paying essentials first and distinguishing between needs and wants; have cash flow discipline, like timing payments carefully; set up a financial cushion for emergencies; use credit and debt wisely, by using credit and debt as a tool and not a lifestyle; establish strong relationships and networks, for they can be strong means of information and provide strong leads to opportunities; develop skills like budgeting and savings; and have a long-term orientation, which can give inspiration to build assets, rather than living just for today.

What is most important is not just money, but savings, budgeting skills, discipline, relationships and the confidence to act deliberately in pursuit of clearly defined and realistic goals. These are useful in helping lower-income people to lift themselves and their families economically, thereby becoming heroes. As for people with higher incomes, they become heroes when they lift themselves out of their financial mire and maintain a healthy status.

Personal finance heroes are not rewarded with national honours and awards. Their reward is ultimate financial security as defined by them, freedom of choice, peace of mind, and the capacity to help others, and in the case of lower-income families, this all-important addition: the empowering of their children to break the cycle of low social and economic power.

Oran A Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email: finviser.jm@gmail.com