Most of us rely on receiving a steady income to pay the bills. But what would happen if that suddenly dried up? Could you still pay your living expenses? Here are four ways to make sure your finances can weather any storm.
If so, for how long? Or would you need to sell your car- or even your home – just to get by?
If you’re worried about how you’d cope without a pay cheque, here are four things guaranteed to make you sleep easier at night.
1. Build an emergency fund
One of the most important steps in becoming financially secure is building an emergency fund. That way, if the worst happens, you’ll still have enough cash to meet your obligations for a while. How much you need in your fund will depend on how big your ongoing expenses are. For instance, you’ll still probably have to cover your mortgage or in rent, your grocery bills, education costs, petrol and transport costs. You should also factor in at least some allowance for having at least a bit of fun.
Many experts recommend continuing to put money into your emergency fund until you can cover all expenses for at least six-to-12 months. Put this money into a high-interest account or, better still, pay it into your home loan if you have one. That way, it will be harder to access if you’re ever tempted to use it when you shouldn’t.
2. Open multiple income streams
Most people have just one source of revenue: their job. So if they can’t work, they don’t bring in anything. (If that sounds like you, make sure you read point 3 below). One of the real secrets to financial freedom is to have multiple income streams, so if one goes down the rest keep working for you.
Generating income outside of your salary may seem difficult when you’re just starting out. But there are still ways you can do it, even while you’re working the 9 to 5. A business on the side, an investment property, income producing shares and other investments can all help you keep bring in some money, even if your regular source of income dries up.
3. Get insured
Spending money on insurance may seem like an unnecessary extravagance. But if the worst were to happen, being adequately insured is probably the single most important investment you’ll ever have made.
Generally, as a minimum, you should make sure that you have life insurance, which pays a benefit to your loved ones if you die. You should also consider trauma and TPD insurance which will generally pay a lump sum if you’re injured so badly that you can’t work. If you’re self-employed, or the primary breadwinner, it may be wise to also invest in income protection insurance. This generally has a lower threshold for paying out than trauma or TPD insurance and is tax deductible.
If you have a home loan, you may also consider taking out insurance that specifically covers the cost of your mortgage repayments if you can’t meet them.
4. Attack your debt
Finally, one of the easiest ways to make sure that you’ll still be able to meet your bills is to have as few of them as possible. You should especially target ‘bad debt’ by paying off credit cards, car loans or other personal loans. Even putting extra money into your mortgage means that you’ll be able to live off far less than you otherwise would.
Want to know more?
So there’s four steps anyone can take to protect themselves against a financial worst case scenario. Get in touch if you’d like to find out more about how you can be financially prepared for any event.