Why You Should Be Thinking About a Financial Safety Net
Life is full of unexpected twists and turns, and when you rely on a steady stream of income to cover the costs of essential expenses, it can be incredibly stressful when it all comes to a screeching halt.
Making sure you’re well prepared is the best action plan to ensure you’re covered in the event of a loss of income or when you find yourself hit with the unexpected, and there’s no better strategy than to establish a financial safety net.
Unlike a run-of-the-mill savings fund, a financial safety net is a risk reduction exercise, which implements a wholistic financial planning approach and includes:
- a rigorous savings habit to build multiple banks of savings
- insurance; including life insurance, total permanent disability insurance and income protection insurance
- access to a line of credit
When saving as part of a financial safety net, you should consider establishing two additional accounts on top of your regular savings fund – one for emergencies, the other for rainy-days.
The key to building up additional banks of savings is to keep it consistent and regular. Make putting away money a habit, or better yet, set-and-forget by setting up a direct debit each fortnight, week or month, on the day you get paid.
Having two separate banks of savings and strategically placing them in the right type of accounts will ensure you’re covered when the unexpected hits. When choosing where to store your funds, consider whether or not it’s a good idea to keep your cash in a term deposit, deposit bonds or in investments, as it may cost you money to withdraw from these reserves before you hit the maturity period.
Taking out insurance policies, such as life and total permanent disability cover or income protection insurance is part and parcel of a financial safety net. Some of these usually come standard with your superannuation fund, however, it’s important to understand your level of cover and adjust it accordingly, as most people are unaware that they even have cover to begin with!
Line of credit
As a last resort, you should consider applying to access a line of credit, in case you find yourself in unexpected circumstances without a substantial bank of emergency funds. Credit cards and personal loans can be costly options but there is an alternative – the overdraft.
Overdraft accounts are a line of credit that is often attached to your everyday transactional account. It provides you with a credit facility should your transaction account fall below zero dollars. They are a less expensive alternative to credit cards and personal loans as there are usually no fees or interest charges associated with an Overdraft account until you access the funds.
Ready to secure your future? Speak to one of our consultants to see how they can help you get started with building your financial safety net.