A pain in the neck can be good reminder to get set for rainy daysAugust 13, 2019
In February this year, I woke up with a pinched nerve in my neck. Now, I’m not talking a slight spasm that I could soldier on with.
This was a wake-up-crying, unable to move, what the hell is happening to me, I’ll hand over my favourite pair of shoes to stop this pain.
A pain in the neck was a reminder on the importance of planning for when things go wrong.Credit:iStock
The good news is I’m married to a physiotherapist, so he was quickly able to reassure me that it wasn’t life-threatening.
The bad news was that he gradually told me over the coming days that this was a long-term issue with no quick and easy solution.
Now, I like to think I’m a healthy, relatively-fit, eats-well, forty something woman.
Sure, I’m a klutz and if there is something for me to trip over, I’ll do it. But I could not envisage that I’d be sidelined overnight by something that would mean I was unable to work, drive or function for weeks and months.
It’s important to figure out a plan when you’re well, employed and able to do something to protect yourself.
Thankfully, I had some important things in place. I had income-protection insurance, a cash buffer which represented at least six months’ worth of expenses and I was still able to derive an income from my businesses.
Research tells me that, for most people, this isn’t the case.
A Financial Resilience in Australia report released by NAB and the Centre for Social Impact (CSI) at UNSW Sydney in 2018 reported that just half of Australians are prepared for a rainy day, with three or more months’ worth of savings to provide a buffer.
Research by Mission Australia suggests that 30 per cent are six paydays away from homelessness.
Many people rely on sick leave and credit cards to see them through short-term injuries or illnesses.
The problem that arises is when we have longer-term crisis. Yours might not be an injury but an unexpected retrenchment or the loss of your largest business client which means your ability to derive an income is flattened.
That’s why it’s important to figure out a plan when you’re well, employed and able to do something to protect yourself.
If your emergency plan is a credit card or moving back in with your parents, here are a few things you can start doing to better prepare.
Sort out your insurance
Yes, it’s the unsexy side of our finances. We insure our cars, our homes and other valuables but too often we don’t insure the most valuable thing we own – our ability to earn an income.
It’s important to understand whether you have the right type of cover, the right level and that it will kick in when you need.
I realised during my experience that my insurance kicked in at 30 days, which is expensive cover when I already have a cash buffer. As a result, I’ll be extending the waiting period to reduce the cost.
Create a cash buffer
Set up a separate bank account (consider using your offset account if you have a mortgage) and start regularly transferring money into that account until you have three months’ worth of savings.
This is your genuine emergency fund. If you then lose your ability to earn income for an extended period of time, you don’t need to panic because you have time to figure out your next move.
Create multiple sources of income
If you are a wage slave and you are injured then you’re reliant on your sick leave, insurance and buffer to tide you over.
If you’re a sole trader and get sick, it’s almost worst then being a wage slave because there’s no paid sick leave.
Instead, it’s about creating multiple revenue streams that aren’t simply reliant on your exertion to produce income.
Or if you’re a business owner, creating a business that isn’t reliant on you being in the business and on the tools to produce income.
Melissa Browne is CEO of A&TA and The Money Barre and author of Unf*ck your Finances
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