Protect your financial health
“If you expect life to be easy, challenges will seem difficult. If you accept that challenges may occur, life will be easier.” – Rob Liano
Life throws curves; it’s the nature of the journey. No matter how much we might plan, it seems that things rarely work out exactly as we intended them to. This is not always a bad thing; often there are lessons to be learned in the detours and construction zones of life that better equip us for what we encounter further down the road. However, there are some curves that would be less challenging to negotiate had we put some safety nets in place.
We know that, when it comes to protecting our physical health, prevention is far better than a cure and the same is true when it comes to protecting our financial health. Often we spend a great deal of time defining our goals and creating a plan that will allow us to achieve them but we don’t stop to think enough about where that plan is vulnerable and what we can do to protect it. Here are some suggestions to consider:
Build a contingency fund
An unexpected expense has the ability to derail the best-laid plans if it’s not accounted for. I’m not a big fan of the term “Emergency Fund” (because I feel like I might be manifesting emergencies by creating it) so I use the phrase “Contingency Fund” instead. The idea behind the contingency fund is to build a pool of money large enough that, if a large expense occurs you don’t have to go into debt in order to pay for it and if you lose your job there is enough money available to cover 3-6 months of expenses. Your contingency fund should be liquid (ie: not locked-in or invested anywhere it has the potential to lose value) but require enough effort to access that you’re not able to dip into it on impulse. A savings account with a different institution than you do your day-to-day banking with is a great option.
Consider critical illness and disability insurance
If you know anyone who has been hit by a serious illness then there’s a good chance you know how devastating it can be to someone’s financial health. Statistically, we’re much more likely to get sick during our working years than we are to die and having to take an extended amount of time off work due to illness can be costly. All too often, people find themselves forced to dip into their retirement savings and it can be hard to replace that money and catch up on your savings goals once you recover.
If you have group benefits then there’s a good chance that you have some type of disability insurance. It’s worth reading your policy booklet or talking to your HR Manager to make sure you understand what percentage of your current salary you’d receive if you were sick, how soon that benefit would kick in and how long it will last so that you know if you have enough coverage for your needs.
Critical Illness Insurance covers you if you suffer a critical illness such as heart attack, stroke or cancer and pays you a tax-free lump sum (usually 30 days after diagnosis). Policies can be tailored to meet your needs and often include a return of premium option which means that if you don’t get sick before the end of the policy term you get all your premiums back.
Death is not something most people want to think about, especially if they’re young and healthy but the reality is that an unexpected death can devastate the people who are left behind. Life insurance can go a long way towards making sure that devastation is only emotional and not financial. The amount of life insurance you need varies depending on what is needed to cover funeral expenses and taxes, pay off any debts you have and provide for dependent children, a surviving partner or to support a cause that it is important to you. It’s important to note that the mortgage insurance offered by lenders is not the same as life insurance and, depending on your circumstances, might not be the best product for your needs.
While it’s impossible to account for every eventuality and every possible curve in the road, there are some threats to our financial health that have the potential to be so devastating that it just makes sense to plan for them. Whether you’re setting financial goals or personal goals, when you create the action plan that will take you from where you are to where you want to go, taking time to anticipate the potential obstacles means that you can make plans to overcome them if they crop up. I believe there’s a lot of truth in the saying that some of our biggest lessons are learned in facing our biggest challenges but I also think there are some lessons that we can learn without having to take on all the pain. What do you think?