Have you ever thought about how your finances would hold up in an emergency?
Although unemployment, illness and death aren’t pleasant subjects, preparing for the worst is essential to ensure you and your loved ones are protected against financial hardship.
In the same way as the fire brigade assesses fire risks in your home, a financial fire drill can highlight any weaknesses in your finances.
Read on to discover four areas where a financial fire drill could put you on a stronger financial footing.
1. Build up an emergency fund
The first step in your financial fire drill is to check whether you have enough money to cover unexpected emergencies.
There are many unforeseen events that can happen in life, such as a temporary bout of unemployment or having to repair a damaged roof. If you haven’t prepared in advance, these events could cause a big dent in your finances and may even result in you going into debt.
It’s generally wise to have around six months’ worth of regular expenses built up in an emergency fund. This money should be easily accessible, which means keeping it in a notice-free savings account.
Separating your emergency fund from other savings can make it easier to keep track of how much you’ve built up.
2. Protect against illness and death
Many people live by the view that serious illnesses won’t happen to them. Unfortunately, illness is a part of life and it can happen when you least expect it.
According to statistics compiled by Legal & General, there are around 175,000 heart attacks and 100,000 strokes in the UK every year. In addition, figures from Cancer Research UK show that someone in the UK is diagnosed with cancer every two minutes.
A serious illness could result in you having to take time off work or even stopping work completely. It could also lead to increased expenses through higher heating bills or travelling to the hospital.
One way of protecting against a critical illness is to take out Critical Illness Cover. This pays you a lump sum if you’re diagnosed with one of the specified illnesses. You could use the money to cover a period of income loss, pay for medical treatment, or make adjustments to your home.
Another form of protection to consider is Income Protection. This provides a monthly payout if you can’t work and lose your income because of illness or injury. It covers both physical and mental health conditions.
Recent research by Legal & General suggests the average household’s savings would last just 24 days if it lost its income, demonstrating how important it is to have cover in place.
If you have financial dependents, life insurance can offer a financial safety-net when you die. The lump-sum could be used to pay off the mortgage or other debts. Life insurance can provide peace of mind that your loved ones will be taken care of if the worst happens.
3. Write a will
Writing a will is an essential step in financial planning, yet research by Royal London suggests 44% of homeowners don’t have a will in place.
If you haven’t written a will, there’s a risk your home and other assets will be inherited by the wrong person when you die.
By writing a will, you can ensure that:
- Your children are cared for by people you know and trust
- Your money, property and other assets go to the right people
- You reduce stress and delays for your loved ones
- Your business passes to someone with the right skills and experience.
At an already difficult time, preparing a will can help to avoid unnecessary distress for your loved ones.
4. Make a Lasting Power of Attorney
Many people assume that if they suffered an illness or accident that prevented them from making financial decisions, their spouse, partner or children would be able to step in.
This is not the case. To ensure a particular person has the legal authority to look after your affairs, you need a Lasting Power of Attorney. This is a legal document that allows you to appoint one or more people to act on your behalf if you lose your mental capacity in the future.
You can appoint attorneys to make financial decisions, as well as decisions about your health and personal welfare.
By planning ahead, you can rest assured that your wishes will be managed by someone who you know and trust.
Get in touch
If you’d like help conducting a financial fire drill, please get in touch. From building an emergency fund to protecting your loved ones, we can give you peace of mind for your own future and your family’s. Please email info@financelab.co.uk or call 0116 262 1414.
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