When you are starting your saving and investment journey, you are VULNERABLE to a financial disaster.
Anyone who doesn’t have a comfortable buffer of money to fall back on in case of the proverbial shit-hitting-the-fan will need some kind of proections in place to kick in until the money is there.
So what do you do? In my membership group this month, we’re talking about insurance and what is needed (and what is not), but insurance is only a small part of the things you can do to protect yourself and the significant others in your life.
How to protect yourself
While going through this list, think about what you have in your own life, and decide what you need to put in place while you’re building up the rest of your finances.
£1000 Emergency Fund
The first step in any proection process is to have £1000 in an emergency fund. Ok, so for many emergencies (like your boiler blowing up), it won’t necessarily cover everything, but it might help to buffer the blow a little. A recent BBC article reported that 22% (16m people) of the UK population has less than £100 in savings – that’s really scary.
So first things first – get the savings up and running. Use plum, or chip, or monzo, or the 1p challenge, sell stuff, get a second job, eat pasta for dinner for 6 months – Whatever it takes, just get it done!
Income Protection Insurance
Income protection insurance kicks in when you can’t work due to illness. Many work places will have a period of time that they pay you an income, but after that time runs out, if you still can’t work, what do you do?
This is BIGGEST issue I see with self-employed people who need to take time off of work but can’t. Most weeks, there is at least one person who cannot work due to an illness, but they can’t afford to take more than a few days off.
Not only is this unhealthy, but it’s also stressful for the individual, and stress causes a release of hormones in your body (like cortisol) which lowers your immune system and makes you more vulnerable to further illness. So get yourself some income protection, ESPECIALLY if you are self employed (this is the first thing on my “to do” list when I start working freelance next year) and ESPECIALLY if you have a family to support.
Critical Illness Cover
This insurance pays out in the event that you get a serious illness such as a stroke for example. It’s a lump-sum pay out that could tide you over until benefits kick in, or income protection kicks in, or if you’re lucky, early retirement/medical retirement payments kick in.
If your illness is not deemed to be “bad enough”, the insurance company won’t pay out, so make sure you read the small print carefully.
Surround Yourself With Good People
Can you borrow a cup of sugar from your neighbour? Could a good friend take your kids in a crisis? Who is around you to lean on with a problem in your relationship/work/business/life in general?
Having a network of people around you who can help you is cruicial. We are living further and further away from our families now, and so the support that goes with that is lacking. Even if you live near your family, there’s no guarantee that they would be good enough support anyway. I can’t tell you how many old people I see in their own homes who haven’t seen or spoken to anyone for days at a time. They use their GP as a lifeline to the outside world.
It’s so sad.
So please, while you are building up your savings, (and even once you have), make sure you have a decent group of friends and colleagues around you who would be there for you if/when it all goes wrong. You never know when you might need a sofa for a few nights, or a lift to the hospital, or a cheerleader at work to help you get a promotion.
Minimalise and Organise
I’m not even sure if that first word is a word, but what I mean is – keep things simple. In the event of needing to move on something quickly, having a huge amount of belongings, or money tied up in all sorts of complicated accounts (or even worse, emergency money that has been invested!) will s-l-o-w you down.
Start decluttering all that junk you don’t actually need (you might even earn some cash for it!), and keep everything tidy and organised (as much as possible – even if everything is kept in storage boxes, that’s still easier to move quickly if needed!). This includes your finances. Do you know what all your passwords are? What about important documents? Where do they get stored? Can you declutter any of your outgoings to make your spending leaner? How fast can you get that debt paid off?! It all helps you out in a crisis! The more nible you can be with your money, the more responsive you can be in life.
There’s no point in having your money tied up in a complex account that requires 5 working days and a sacrifice of your first born to release. When you need the money, you need it NOW. So always have £1000 sat in an ordinary account – if you are tempted to spend it, stick it in an account that you don’t have online banking access to (I have the balance of mine hidden in my NatWest account so I can’t see what’s in there at a quick glance).
Have A Credit Card On Ice
Credit cards can be useful things when handled properly. Ideally, a 0% interest credit card is your best bet – The Money Saving Expert regularly posts deals on 0% credit cards so you can pick one that will work for you. If you can’t get one of these, but have a credit card, stick it in an old metal tin (like a baked bean can) and fill it with water – then freeze it.
Having it on ice gives you the melting process to think about whether you need the thing you want to buy or not, and it gives you the peace of mind knowing that you have a crutch to lean on in an emergency until your savings catch up.
Obviously a credit card is a real last resort, but in a temporary crisis, it may just be the thing you need to survive.
So there you have it – several ways you can help protect yourself and your family in an emergency while you build up your savings buffer. The start of any savings journey is HARD – don’t underestimate how difficult saving money can be. It tests every ounce of strength you have NOT to overspend – and if you have done this for years, it will be tricky to overcome. But you must overcome it! Having no savings at all is just not an option.
Good Luck on your savings journey. Come into my free private Facebook Group and tell us which of these you’ll be sorting out first!