It’s an unfortunate reality, but all of us will face a crisis at some time. We have no control over what kind of crisis hits us. But the impact on us and our family will depend largely on how we respond to it. Your response is wholly in your control so it’s crucial to have a plan in place before a crisis happens.
Predictable vs unpredictable
A single life event can change the direction of our lives. It can be predictable or unpredictable. Some examples of predictable life events include starting school at age 5, puberty, and menopause. Unpredictable life events are also called crisis events. A crisis comes in different shapes and forms.
Unanticipated early retirement. This major disruption can be the result of redundancy, downsizing, or the end of a career. Would you have enough saved up in retirement assets to sustain your current lifestyle?
Disability. Your inability to work due to illness or accident can put a big dent on your finances. How will you meet your day-to-day living expenses if you couldn’t work any more?
Changes in your family situation. This includes marriage, divorce, and even instant stepchildren. How will this affect your estate plan? Ideally, your estate plan should go beyond superannuation beneficiary nominations.
Outliving your money. Retirees often spend their first years splurging on travel or other bucket-list goals. Add to that the increasing cost of living – especially medical expenses. Having an accurate estimate of what your expenses will be in retirement is crucial because understating your expenses means you can easily outlive your portfolio. Will you have other sources of income?
Aged care. This overlooked area of retirement planning is also potentially the most expensive. How will you pay for it?
Premature death. Having a proper estate plan and adequate life insurance ensures your assets are distributed according to your wishes and that your family will not experience financial hardship following your death.
4 ways to prepare for the unexpected
Regardless of the scope, having a plan in place can be the difference between a quick resolution and financial ruin. So, what can you do to prepare for the unexpected?
Ensure you have proper life insurance coverage
You insure your house and your car. So, why not yourself and your income? Income protection insurance provides steady payment if you’re unable to work. Disability insurance pays a lump sum in the event of sickness or injury. Life insurance protects your loved ones from financial disaster following your death.
Bulk up your emergency savings
An unexpected event like an accident or a serious illness can be devastating if you’re not prepared. Medical bills can go through the roof. We all know it’s important to save. But how much is enough? A rule of thumb is to put away enough money (3-6 months of living expenses) into a ‘rainy day’ account. Start small and continue building it up each month. Saving as little as 1% of your income is a good start.
Create an estate plan
These are legal documents that determines who will make key financial and medical decisions on your behalf. Without a Will, upon your death, a court controls the distribution of your estate. An Enduring Power of Attorney provides your chosen person with authority over your financial affairs until you die (it extends beyond any loss of mental capacity). An Enduring Medical Power of Attorney provides the attorney with authority over your medical needs if you’re unable to make these decisions yourself (whether temporarily or permanently).
Seek expert financial help
The thing about the unexpected is that you never see it coming. How can you plan for something which you can’t anticipate? While it sounds impossible, it’s not.
Financial planning can help you see how your finances may change, and, how your lifestyle would be affected should something unexpected occur.
For example, cash flow planning can help give you a projection of how your family’s money situation will change in the event of your disability or death. This allows you to prepare and to create an accurate picture as possible.
A financial planner can help you see the steps you can take when things go wrong. A little preparation today can protect you and your family when an unexpected event takes you by surprise.
Life doesn’t always go perfectly. There will be twists and turns. The impact of significant life events will be much easier to handle with a little planning.
You can reduce the impact of a crisis if you’re ready to respond. So, don’t panic. Expect some things to go wrong. Prepare solutions in advance.
Planning can make the difference between enduring a crisis and giving in to it.
How do YOU prepare for the unexpected?
If you’re feeling like you’re not quite as prepared as you would like to be then book a chat with the Integra team to discuss our personal situation.