Why it’s important to protect your Income
Your income is your most valuable asset yet according to Aviva’s 2017 Report on Protecting Our Families less than 50% of people have taken steps to protect it. Too many people, could find themselves financially vulnerable if they lost their main source of income. While it’s not something any of us likes to think about, we need to be realistic when it comes to protecting our income.
Take some time to review your own finances by considering the following:
- Be informed. Look at how much your earnings and/or your spouses’ earnings are worth to the household. Calculate your monthly outgoings such as mortgage, car loan, house insurance, utilities, groceries, education, etc that are supported by your income and work out how much of a shortfall there would be if one of your incomes was stopped. Could you manage?
- Get saving. Consider how you will cover any sudden loss of income, even if it’s only temporary. You should have the equivalent of 3 months’ salary in your savings account to cover your outgoings should your income suddenly stop. Consider an online savings account, easy access savings plan or term deposit.
- Get ahead on your mortgage and home loan repayments by the equivalent of 3 months’ salary and build a safety net for your earnings as well as reducing the interest you pay. Is this tax free? Check with your mortgage provider that you can draw down or offset your mortgage.
- Life Cover. If you have a mortgage and/or you are the main breadwinner in the family, you should have life cover to offset your debts and funeral expenses at the very least. Even if you are not the breadwinner you may need this. Consider who would look after the children while your partner works? How would they pay for this?
- Income Protection. You should consider income protection for injuries and illnesses that are ongoing to keep income coming in while you recover and indeed cover you right up to retirement if your policy allows for it.
- Make a Will. Make sure to draw up a will. You should also keep and update a list of all your assets and keep in a safe place. Get it done and save your loved ones the headache when you’re gone.
- Power of Attorney. It’s a good idea to nominate someone to carry out power of attorney on your behalf should you become incapacitated. Power of Attorney can be set up by a person during his/her lifetime when he/she is in good mental health and allows another specially appointed person to take actions on the donor’s behalf if he/she is absent, abroad or incapacitated through illness.
- Talk to your family. Simple things such as knowing where to find the combination to your safe, internet passwords, personal papers and bank accounts details, your will, etc should be confided to at least one family member should anything happen to you.
You should speak to a financial adviser and review all policies annually, not only for expert insight but to ensure you’re not overpaying for protection.