How to plan for the unexpected in your personal financial journey
Having control over your finances can deliver great things – the dreams and aspirations that only money can buy. Saving and investing for the experiences and purchases that inspire you can be an exciting adventure.
To get the best financial outcome, you need to be prepared to take advantage when fortune smiles. But in life of course, not everything goes our way all the time. When things go wrong, your personal financial journey can easily turn sour if you don’t have a plan.
Most unexpected challenges can be dealt with through time and a clear road map. In this news post we’ll take a look at the key areas you should consider, to ensure your personal financial journey overcomes the inevitable challenges of life.
1) Plan for “road bumps” in your income
Cashflow fuels your financial health and helps to make your dreams come true. Knowing what income you can expect in the future, and having a clear spending plan (or budget) to manage it, is vital.
Yet it’s quite likely that you may experience an unplanned interruption to your wage income – whether because you’re between jobs, undergo a redundancy, or have a serious illness or accident that leaves you unable to work. You might have access to sick leave, but that only goes so far. And it won’t help you if you’re unemployed for an extended period.
One way of dealing with this is to just cross your fingers and hope that any of these events don’t happen to you. Unfortunately, this method isn’t very effective!
It’s far better to make sure you have some capacity to draw on funds to meet your financial obligations while your income is disrupted. This can be as simple as money you set aside in a bank account, or perhaps an unused credit facility. If you’re very organised, you might arrange the ability to draw down on your home equity at such times.
Whichever way you go, it’s important to have an understanding of how you will access funds for short-term needs without income.
2) Have a plan for surprise expenses
There’s nothing quite like an unplanned expense popping up to give you a sinking feeling! Yet you need to cater for them regardless.
Whether it’s car maintenance, healthcare costs, or urgent home repairs, a surprise expense can play havoc with your cashflow unless you’ve planned ahead for it.
Just like dealing with a pause in your income, the immediate solution is to have access to funds at short notice – and the same solutions can help. Make sure you understand ahead of time what facilities you’ll use to access cash when you need it most.
3) Plan around challenges that might not be just short-term
Unfortunately, by their nature not all serious illnesses or injuries that could prevent you from working are resolved quickly.
Some common health reasons for missing work – such as stress issues and back or neck disorders – usually take an extended time to sort out, which will obviously have a magnified impact on your financial position.
This is where income protection (also known as salary continuance insurance) can be vital. It allows for you to receive some payments when you can’t work, allowing you to focus on recovering and getting back to work.
Chances are that you may have some insurance within your superannuation fund, but it’s often basic and may not cover truly extended periods off work. It pays to check if any cover you have is enough – and if you’re in doubt, seek some expert advice.
4) Have a plan to deal with your inevitable exit
At some point, we all need to face our own mortality. That’s why planning for our eventual death is such an important part of our financial journey.
With good health and a little luck on your side, hopefully you’ll enjoy a long life and be financially prepared, so that your loved ones can deal with your financial affairs in an orderly way. But if you’re struck with an accident or terminal illness earlier in life, it’s quite likely you’ll leave behind debts, obligations and often a family needing support.
Having adequate life insurance, an up-to-date Will, and a clear estate plan will ensure that most of these issues can be dealt with. Again, your superannuation fund will often have some insurance – just make sure you review it regularly and top it up to make sure it meets the needs of your family and estate.
The combination of Wills, insurances, and superannuation is complex and has taxation implications, so it certainly pays to consult an expert to ensure your needs are met.
Take control of your finances and enjoy the ride!
You can’t always control what comes your way – but you can control the impact of any events with a little foresight and planning.
Being clear on your life, work and financial ambitions is the key to ensuring you don’t run out of money before you meet them. Making sure your investment decisions are aligned with your ambitions will ensure most surprises are limited and short-term in nature. Those that you can’t control can be dealt with by having a clear insurance and estate plan.
The biggest risk you can take is to simply rely on good fortune with your finances. Plan for great things, and if you don’t feel confident doing it yourself, seek out a professional who can give you the support that you need.
For your complimentary no-obligation chat with an HM financial adviser, call us on 07 3229 3688 or use the simple contact form here.