If there is one thing that this year has taught us, it’s that an emergency can strike when you least expect it. Through my own experience as well as through hearing countless stories from others who have been affected by bushfires, cancer, war and numerous other tragedies, one thread is common: no one thought it would happen to them.
While it is human nature to want to ignore the possibility of something happening to us or things not going our way, it is extremely important to prepare ourselves for the unexpected, just in case.
Here are five simple things you can do to prepare yourself for a financial emergency.
Insure your assets
As the saying goes “protect that which you can’t afford to lose”. This means making sure that you have reviewed your insurance policies for your car, building (if you own your own home), and valuable contents.
Hot tip: Check your insurance policies to make sure you understand what you are and are not covered for, that you are insured for the right amount, and that you understand what evidence you need to keep on file in order to satisfy an insurance claim.
Most of us have been conditioned to take out insurance for everything under the sun – including your house, your car, and your possessions. We take out travel insurance when we go on holiday, and pet insurance to protect our pets. But what about protecting you? So often, we forget that our health and ability to earn an income is our greatest asset, and one that is definitely worth protecting.
Hot tip: Make sure that you have adequate hospital and ambulance cover in place. While hospital cover helps look after your medical care, what happens to all your other bills and living expenses when you are off work and have exhausted your sick leave? This is why a range of life insurance policies are also available to help you out financially if you are diagnosed with a serious medical condition and are unable to work – temporarily or permanently. These policies are Life, Total and Permanent Disability, Trauma and Income Protection Insurance. As a starting point, contact your employer and super fund to find out what cover you already have in place, and see your financial adviser to check whether the level of cover you have is sufficient to meet your needs.
Have back up savings
While having insurances in place is great, it can take some time for the claim to be processed and money to reach your account. This is why you need access to quick cash to tie you over in the meantime. When it comes to how much you need to set aside in your emergency savings fund, three months’ worth of living expenses is a good goal to aim for. Ultimately, how much you need will depend on your personal circumstances. For example, you may need to save more if you work in a role where it could take time to find a replacement job, or if you don’t have any income protection insurance.
Hot tip: Look for opportunities to kick-start your emergency savings fund, like selling items you no longer need, downsizing your car or finding cheaper utility providers.
Prepare a Will
Having a valid will in place can make a stressful situation that little bit easier for your family to handle, should something happen to you. A valid will means that you maintain greater control over how your assets are distributed, and can avoid dragging your family through the court system. Be careful of doing it yourself without legal advice, as will kits and DYI wills can often be ambiguous, incorrectly completed or witnessed, and can make it for someone to challenge the will. It also helps to put in place an Enduring Power of Attorney and Enduring Power of Guardianship (also known as Medical Power of Attorney). These documents will enable someone you trust to make financial and medical decisions on your behalf in case you are unable to do so yourself (for example, due to being in a coma).
Hot tip: If your salary goes into a bank account that is only in your partner’s name, that account is likely to be frozen upon their death, leaving you without access to cash in the short term. To avoid this situation, make sure you have money going into a jointly held account or keep some savings in your own name.
Organise your important documents
Last but not least, prepare an ‘important documents’ checklist. This will make it easier for you or your loved ones to find important information in an emergency. Include things like details of your insurance policies, super and bank accounts, and contact details for your doctor, accountant, lawyer and financial adviser.
Hot tip: Keep important documents like insurance policies, tax returns, passports, wills, birth and marriage certificates in a safe place so they are easy to grab when you are in a hurry. It is also a good idea to keep a scanned certified copy of important ID documents such as your passport, birth certificate, citizenship certificate. Grab a copy of Wonder Woman’s Guide to Money for a free Important Documents checklist, among other practical tips and tools. Available now on Amazon and Kindle.
Natasha Janssens is a Certified Money Coach (CMC)® and founder of Women with Cents. She is an award winning finance expert with a passion for supporting women to transform their relationship with money. If you don't know what you don't know when it comes to money and financial matters, her book Wonder Woman's Guide to Money is for you. If you would like to work with Natasha, take the Money Type Quiz and book a quick get-to-know you call.