At no point in our life can we accurately predict what the future has in store for us. It therefore becomes binding for us to consider the risks that lie ahead and be adequately prepared for tackling different situations.
We must be able to act in our best interests even when things do not fall into place. Life may not shape up to be exactly how we had planned it would. While many life circumstances are quite beyond our control, we can take charge of what our financial situation may be a few years from now, at least to some extent.
How to go About it?
The first step in any financial planning is to take note of what is important to you. It may be your lifestyle, your family or your home. It is only when you are absolutely certain about what you care the most about can you proceed to the next step of securing it.
It is important to be prepared for different life situations. According to a study conducted by Money Advice Service, more than one in six working families stands at a risk of facing severe financial hardship if the main earner in the house became unable to work. These families may have their incomes reduced to two thirds and would receive negligible financial support from the state.
Understanding Your Needs
In order to be sure about whether you need protection and if you do, which protection would work the best for your needs, you need to take several things into consideration. These things typically include your savings, your debts and mortgages and whether you already have an insurance product.
Two individuals are unlikely to be the same and for this reason each person requires a different type of protection depending on their personal circumstances. Following are some aspects that influence the type of insurance cover you may receive:
Ø Marital Status
Ø Habits such as smoking, drinking etc.
These are just a few examples of what is taken into consideration.
Following are certain measures you can take to ensure that you have a sound financial future ahead of you:
Savings as Protection
A person should not only save money for life-altering events such as accident, illness or death but should also save money for events such as not having a job for a few months or simply being unable to go to work for some reason.
A general advice dispensed to those looking for personal finance tips is to have enough money saved so that even if they do not earn any income for three months they can still cover their daily expenses for a period of three months.
But it may not always be possible to accumulate enough savings so as to survive a dry financial spell of three months. It is therefore advised that you have a combination of substantial savings along with some form of protection insurance.
Paying Off Debts
Given the kind of lifestyle we lead, debts have become relatively common. Some common forms of debt include mortgages, credit card bills or other unsecured loans. Most debts that people owe do not grant them any exemption meaning that they will still be required to pay it when they haven’t been earning sufficiently enough.
For this reason, it is important that we keep regular tabs on how much debt we owe and try to pay them off as soon as we can in order to avoid accumulation of excess debt. When in debt it is important to not apply for more credit with the intention of paying your dues with a loan as it can take you into deeper debt.
Your life situation largely governs what type of insurance policy you may need:
Ø If you were to die unexpectedly, a life insurance policy pays the people whom you nominate as dependants in the form of a lump sum of cash or regular payments. In case you are survived by a spouse or child, having a life insurance ensures that they are able to lead a sound financial life even in your absence.
Ø If you are self employed an income protection insurance will take care of your finances in the event of you becoming unable to work due to an illness or injury.
Ø If you wish to make smaller premium payments you can consider taking out short-term income protection insurance. Such a policy will provide you with income for a set period of time.
Ø Critical illness cover is one such insurance that takes care of your financial needs if you were to get diagnosed by a life changing condition.
While taking the above steps should help us lead a sound financial life, writing a Will is something we should do to further cement our efforts towards making our future financially secure. Writing a Will has become a relatively easier task as we can simply download a free Will template and are no longer required to hire expensive solicitors for the same.