Protect your Finances and Survive
It’s nearly 29 years since the Government produced the controversial “Protect and Survive” booklet which was designed to inform British citizens on how to protect themselves during a nuclear attack. Thankfully they were never needed, (although were made widely available), but they did provide useful advice, which explained all the characteristics of a nuclear attack and what steps you should take to survive.
Today you can’t switch a news programme on without hearing the terms financial downturn, recession, credit crunch, property crash etc and for many people the media coverage creates a worrying, apocalyptic view of the financial future. For others, the coverage is becoming background noise particularly if they are not experiencing any hardship first hand. However, finding the right course of action and the information you need is not always readily available or straightforward as all of our circumstances are different.
Time spent preparing for the worst is time well spent and can offer comfort to yourself and your dependants, at the end of the day you are preparing yourself for such eventualities. So how do you know if you should be worried and what should you be doing to “protect and survive?” Well this is achieved through a financial risk assessment, a process of examining the potential chain of events should you suffer a loss of income against the costs required to insure and safeguard your financial commitments. Faced with a worst-case scenario where no notice may be given, how long could you financially survive if your employer went into liquidation or if you were dismissed from your job? It’s probably a situation that you don’t want to think about, however it’s a good barometer for sizing up your current financial position.
Chances are in this scenario that it is unlikely you’d be paid and it may be some time before you would be able to recover any outstanding monies. If the answer to the above is less than two weeks then it’s clear that you need to focus some urgent attention on your monthly budget. You need to accommodate an emergency savings pot along with a regular savings allowance. The textbook target you should set yourself is to have at least three months salary in an instant access savings account and you should look to be saving at least 10% of your monthly salary.
The reason for three months is that this is the average time taken to find a new job (if you’re self employed this should be six months). It may take you up to three years to accrue this sum (longer if you have debt to clear); however you must give this task high priority.
The next unpleasant scenario of being unable to work through illness or injury presents a number of challenges. Unfortunately we are all vulnerable from road accidents, sports injuries or being struck down with a long-term illness. This presents a huge challenge when it comes to keeping on top of your commitments. You should look at your employment contract of your current job; are you familiar with what terms the company is obliged to pay you? You should familiarise yourself with the calendar of key payment events and of course when you would only be entitled to statutory sick pay and cease receiving any salary.
Your next port of call should be to look at critical illness cover and this should only be bought through a good independent financial advisor. The reason for this is that many people have been caught out on the wording of these agreements in relation to existing conditions along with what exactly is covered which has resulted in many unpaid claims. Redundancy unfortunately is a word that is appearing more and more frequently in the news and the harsh reality is that no one is safe. Just because a company is doing well now, it doesn’t necessarily equate that they won’t be making redundancies. With redundancy if you have been with the company for less than two years chances are you will get up to a month’s paid notice if you’re lucky.
As with the above liquidation example you need to give some attention to your savings and budget, but also weigh up the risk versus costs of insuring yourself against this eventuality. Looking at the above areas you should realise that if you’re employed there is always a risk of the above situations.
That doesn’t mean to say everyone should panic, after all if you’ve bought a smoke alarm you don’t typically worry that your house is going to burn down all the time! However, if you are fortunate enough to be in a job where such risks are low currently then you have the best opportunity now to plan your financial defenses rather than waiting for the storm to hit.
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