Are you prepared for unexpected bills? Can you make your mortgage payments for the foreseeable future? If you answered ‘no’ or ‘maybe’ to these questions then perhaps it’s time to take your head out of the sand and look at how to protect your finances.
We can’t always control what life throws at us but we can control how we deal with it when it happens. Setting yourself up so you feel safer financially is a wise decision in this world of uncertainty. As we saw from with the global financial crisis of 2007, bankruptcy and losing a home can become all too real possibilities if you don’t.
1. Get your finances in shape
With all the apps out there these days enabling you to keep track of your income and expenses, there’s really no excuse for being oblivious to your finances. If you keep coming up short each month and struggling to make bills then you’re spending more than you earn.
Download a money management app, and record all your income and expenses to work out what you can safely spend and save. This is the first step to financially protecting yourself.
2. Stop accumulating credit card debt
If credit card spending and repayments feature quite highly in your expenses, then this is an important area to focus on changing.
If the global financial crisis taught us just one thing then it would have to be - don’t rely so much on credit. But unfortunately for many Australians this lesson seems to have fallen on deaf ears.
According to Finder.com.au “While many other developed countries have seen a decline or “levelling out” of personal debt since the 2008 global financial crisis, Australia’s debt levels have continued to increase. As a result, Australia is now reported to have some of the highest personal debt levels in the world.”
Unless you have your finances well under control and you can make payments to your credit card immediately after you’ve bought something, don’t take it shopping. If you wait until the repayment date and you can’t make the payment, it’s the bank who is going to end up richer.
3. Set up an emergency fund
Once you know exactly where your money’s going and how much you have left over then aim to build an emergency or rainy day fund. This money buffer will protect your finances from surprise expenses or unexpected bills that, if you don’t have a backup, can leave you at the mercy of loan sharks with their fast cash loans.
Yes, the bill or expense will be paid but you’ll have a new problem - loan repayments with high interest rates!
Building up an emergency fund doesn’t have to be overwhelming, you just need to make small consistent payments and don’t dip into it - even $20 a week adds up. Choose a high interest savings account that has a penalty for withdrawals or loss of bonus interest as an added incentive.
4. Mortgage protection insurance
If your job isn’t that secure (and let’s face it, who’s is these days?) or you’re worried your rainy day fund isn’t enough, then taking out mortgage protection insurance could be a wise move to give you peace of mind in the interim.
Couples with young families who rely on one income, are especially vulnerable if there are unexpected expenses or a job loss. There are always pros and cons with taking out any kind of insurance, so check these out and talk to your partner before you make any decisions.
Follow these tips and you’ll be well on your way to protecting your finances. For more information on financial planning, be sure to download our Bricks+Agent ebook Managing Your Property and Your Future.