We are always told that we should put money aside for a rainy day, but when things are going well it can be difficult to commit to. Life is for enjoying and when we’re on top we feel as though we’ll be there forever.
Unfortunately, it’s at times like these when disaster often strikes completely unexpectedly. Whether it’s due to a family crisis, personal injury, a career setback or any other kind of unwanted disruption, the financial implications can be devastating.
So, although it may sound boring, or overly sensible, it really does pay to plan ahead for those rainy days and here are a few tips to help you get started.
Save when the sun is shining
The best time to put money away is when everything is going well. If you’ve received a bonus at work or a promotion, it can be tempting to simply live a more extravagant lifestyle. Income increases are often followed by increases to outgoings, which may be sustainable at the time but could leave you short when disaster strikes.
The first thing to do when you receive an income boost is to take stock of the situation. Do you really need a new car or an extension to your property? Perhaps most of your increased wealth would be better off going into your savings instead.
Although it can be difficult to know exactly how much to save, research suggests that the majority of individuals do not squirrel enough away. Financially successful people usually save at least 10 per cent of their income every month and although that can be difficult, particularly when you’ve just had a salary increase, you’ll appreciate it if things take a turn for the worse.
Insurance is another outgoing that nobody appreciates at first, but that ultimately proves essential. Although some types of insurance are a legal requirement, such as car insurance, other types can leave individuals scratching their heads. Do you really need it and how much coverage do you need?
Home insurance, for example, can be vital in the event of damage or theft, but there are many different policies available including buildings insurance and contents insurance, as well as others tailored to renters and students. For homeowners it can often work out cheaper to combine buildings and contents insurance, but it makes sense to compare premiums carefully to ensure you receive the best deal. It is also important to be aware of exactly what you are covered against and what you are not.
Although having insurance can help you to cope financially in the face of disaster, that doesn’t mean you should simply throw money at your chosen policy. There are a few tips that you should follow to lower your insurance premium including joining a neighbourhood watch scheme and upping your voluntary excess.
Like home insurance, life insurance can prove similarly valuable in the event of personal tragedy. Whether it helps to pay off final expenses, replace spousal income or clear debts, life insurance is certainly worth considering when you’re planning for a rainy day.
When your normal pattern of life is disrupted it can be extremely disorientating. Knowing what to do next can be made a lot easier if you know your rights and are aware of any support you may be legally entitled to.
Let’s start with the example of being dismissed from work. The first thing to do is to check whether your dismissal was fair and just under the law. Assuming you were in full-time employment, your employer must have a clear and justifiable reason and have carried out a thorough investigation into the circumstances that led to your dismissal. Unfair dismissal does still occur and it’s important to be aware of your rights.
Another work-related incident that can disrupt your financial security is personal injury. Workplace accidents can cause long-term differences to your quality of life or simply prevent you from carrying out your work duties in the short-term. In either case, compensation lawyers may be able to secure your future finances and help you on your road to recovery. Often people are simply unaware that they are able to make a claim or believe that it could actually cost them financially. However, many compensation policies offer a no win, no fee guarantee.
Even if you are not eligible to make a compensation claim, there may be other ways to protect your finances. Depending on how your circumstances have changed, whether it’s via illness or bereavement, you may be entitled to state benefits or early retirement, so it always pays to be aware of your individual rights.
Financial disaster doesn’t always follow a personal tragedy or setback, sometimes it’s simply a natural result of the risk involved in economics. Although investing can be a great way of preparing for the future, there are no guarantees that you’ll make a return on the money you’ve put in.
The first step to sensible investing is coming up with a clearly defined plan. Consider how much money you have to invest, how quickly you need the money back and how hands-on you want to be. It is also important to have a calm approach once you’ve made your investment. Keep a close eye on your portfolio but don’t fall into the habit of checking the stock market every five minutes. Stocks rise and fall every day, so don’t react too hastily to changes.
In order to guard against the risk of your investments failing, it is important to spread your assets over a broad portfolio, taking into consideration geography, industry sectors and stock size. By diversifying, you can spread the risk should one of your investments fail, while still achieving growth.
Saving, investing sensibly, insuring your assets and knowing your employee rights may not be exciting, but they certainly are worthwhile, particularly when disruption occurs to yourself or your family. You should keep your fingers crossed that the rainy day never comes, but if it does you’ll be grateful that you’ve prepared yourself for it financially.