Sometimes life can throw things at us that we aren’t expecting. Accidents, unemployment, or other tragedies can cause massive disruption to our finances, on top of the social, emotional, or physical impact they might have. When struggling in the wake of disaster, no one wants to have to worry about money.
Financial resilience is the ability to bounce back when life shocks our bank accounts. Unfortunately, resilience in Australia declined between 2015 and 2016, according to the Centre for Social Impact (CSI). Last year, 2.4 million Australian adults were financially vulnerable, and only one in five thought they would be able to put together $2000 in a week.
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So how can Australians ensure that they’re financially prepared should the worst happen?
1) Create sufficient savings
Saving might be hard, but with the right guidance you can work towards establishing a buffer.
Having secure cash that you can access in case of emergency is extremely important. Saving might be hard, but with the right guidance, you can work towards establishing a buffer. But how much is enough?
A considerable 29 percent of Australians reported to Comparethemarket.com.au that they knew someone who was unable to work for at least three months due to illness or injury sustained outside of work. Three months worth of your income should be the minimum amount held in savings. The CSI claims that 45.5 percent of Australian adults have less than this available in their savings.
Creating savings begins with effective strategy and financial planning. Check out our guide to understanding goal setting to get started.
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2) Ensure you have comprehensive insurance
For single-income households, in particular, income protection insurance is vital. With this kind of insurance, up to 75 percent of income lost through your inability to work will be replaced by your provider.
All employer-nominated superannuation funds will offer a minimum level of income protection insurance. When assessing your financial resilience, investigate the cover provided to you by your super and consider adjusting the premiums you pay to get the best protection for you.
You can also set a waiting period on your insurance, which limits how soon after an incident you can make a claim. Take into account your access to emergency cash and leave balances when selecting your time period – if you can absorb three months worth of income loss, that may be a suitable waiting period.
Communicating with your loved ones about money is key
3) Be open to talking about finances
We want to create financial security for our clients by educating and nurturing understanding.
The best way to prepare yourself for disaster is to talk about money. If you have a partner, communicate your financial situation clearly with each other so that you can establish how financially resilient you are, and what you need to do to improve.
The CSI stresses the importance of knowledge to financial resilience. Always be willing and ready to learn about money management, and build a financial plan for your future.
At Invest Blue, we want to create financial security for our clients by educating and nurturing understanding. If you’re looking to find stability, contact us today.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.