If life pulls the plug on your income
will you go down the drain?
The economic down turn and publicised retrenchments may have caused your mind to wonder “how will I cope if I lose my job?” Maybe the answer has stressed you.
Whether or not you are facing the potential of losing your job I recommend you seriously ask yourself “how long could I last on zero income?”
Situations that could create zero income
It is much more likely than you think. Your income could drop to zero as a result of:
- Retrenchment
- Injury
- Illness
- Exasperation (“I can’t take this job/work any more”)
Exasperation is one cause not to be lightly dismissed. What proportion of people do you know who are working within their passion, in a role and environment that fulfils them? Are you? Would you like the freedom to change and pursue your passion?
Tools to help you cope with zero income
The best tool to give you the ability to easily manage either of the above causes is to have already amassed enough assets and/or passive income.
If you are not yet financially free then consider implementing these other tools until you are.
Liquid savings
How much do you cost to run each month?
If you take the amount of your liquid savings (such as cash) and divide it by your monthly expenses how long will it last?
How long before you fall behind in your loan repayments and start negatively impacting on your credit rating?
One valuable tool for all scenarios is to build up several months, sometimes a year or two of liquid savings. Some of the savings will be in cash or cash-like accounts, some may be in highly traded shares or managed funds.
How much you need in liquid savings depends on you and the choices you’d like to be free to make. At the very least I suggest having three months supply or more.
Insurance, especially income protection
In 2007, 62% of bankruptcies in the USA were medically related. “Most medical debtors were well educated, owned homes, and had middle-class occupations. Three quarters had health insurance.” Forty percent of these bankrupts lost income due to the illness or injury.
(Source: “Medical Bankruptcy in the United States, 2007: Results of a National Study”. Himmelstein et al.)
Private health insurance alone will not help you survive a serious illness or injury. The type of insurance that covers your ability to earn an income is called income protection insurance. It pays you a regular monthly amount to replace up to 75% of your income.
If you don’t have income protection then I highly recommend that you act. Plus the premium is tax deductible – so purchasing a policy now could save you tax this year.
One other type of insurance to consider is Total & Permanent Disability (TPD), which pays a lump sum amount. You probably have some in your superannuation but do you have enough? Most people don’t even have enough to repay their mortgage and give them the security of a roof over their head.
If I was seriously ill or injured the last thing I would want is the stress of being kicked out of my home. If you too don’t want that possibility then either get adequately insured or win lotto division one this week.
Your Actions
To ensure you can easily cope with a loss of income:
- Build liquid savings
- Purchase income protection insurance
- Create flexible wealth
- Become clear on your needs and your cost to run
I can help you with all of the above:
- Cash flow coaching to build liquid savings
- Selecting an insurer who will actually pay a claim
- Building wealth for lifestyle freedom
Call me now on 1300 669 100 to book your first, complimentary appointment.
Yours in prosperity
Matt Hern CFP
Financial Educator and Adviser
(This article appeared in my free newsletter “On The Money“. You can subscribe for free here.)
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