Surviving the Unexpected: Building Resilience Through Financial Planning
Life is unpredictable, and while we can't foresee every curveball, we can prepare for them financially. Unexpected expenses like medical emergencies, job losses, or natural disasters are all too common, and having a robust financial plan is essential.
As financial advisers, we’ve seen firsthand how preparation can make the difference between financial stress and security.
Here’s how you can build financial resilience by preparing for life’s unexpected moments.
The Role of Emergency Funds
An emergency fund is a crucial buffer that allows you to manage unexpected expenses without relying on high-interest debt. It is recommended that your emergency fund should be able to cover three to six months’ worth of living expenses.
Why is this so important?
For job loss or income disruption: With unemployment benefits like JobSeeker often insufficient to maintain your standard of living, having a financial safety net is critical.
For unexpected expenses: Whether it’s a sudden car repair or replacing a broken appliance, having cash on hand can save you from using high-interest credit cards or personal loans.
Start small and automate your savings to gradually build your emergency fund. Begin with an amount that aligns with your cash flow plan—whether it’s $20 or $200 a week.
A well-funded emergency account not only provides flexibility and reduces financial stress when life doesn’t go as planned but also ensures peace of mind, knowing that life’s smaller bumps won’t derail your financial future.
Insurance: Your Family’s Financial Safety Net
Insurance is one of the most effective ways to protect your financial stability. In Australia, several types of insurance can shield you and your family from life’s unexpected events.
While we rarely hesitate to insure the tangible things we own—such as our cars, jewellery, or homes—we often hesitate when it comes to insuring ourselves, even though we are often our most important asset.
1. Health Insurance:
While Medicare covers basic medical expenses, private health insurance can help cover extras like dental, physiotherapy, and private hospital stays.
Rebates from the Government and avoiding the Medicare Levy Surcharge can make private health insurance more cost-effective.
2. Income Protection Insurance:
If you’re unable to work due to illness or injury, income protection replaces a portion of your income—usually up to 75%.
Premiums are tax-deductible in Australia, making this a valuable option for both employees and self-employed individuals.
3. Life and Total & Permanent Disability (TPD) Insurance:
Life insurance provides for your loved ones if you pass away, while TPD insurance offers a lump sum if you’re permanently unable to work due to disability.
These can often be included within your superannuation fund, making them easier to manage and more tax-effective.
4. Critical Illness ( Trauma Insurance):
Provides a lump sum payment if you’re diagnosed with a serious illness such as cancer, heart attack, or stroke.
This insurance can cover treatment costs, living expenses, or even allow time off work to focus on recovery, providing a financial safety net during challenging times.
5. Home & Contents Insurance:
With extreme weather events like floods and bushfires becoming more frequent, insuring your property and belongings is more important than ever.
Insurance isn’t a set and forget. Regularly review your insurance policies to ensure they meet your current needs. Significant life changes, like buying a house, having children, or experiencing health challenges, may require policy updates
Preparing for Life’s Curveballs
While emergency funds and insurance are critical, comprehensive financial planning goes further.
1. Build Superannuation as a Long-Term Safety Net:
Superannuation isn’t just for retirement—it can also serve as a financial safety net in extreme circumstances. While accessing your super early should always be a last resort, it’s important to understand the conditions under which it’s permitted, such as severe financial hardship or medical emergencies.
2. Protect Your Income
For business owners and contractors, unpredictable cash flow is often part of the reality. Develop strategies to manage periods of reduced income, such as maintaining a buffer account.
3. Estate Planning
Having a legally binding will is critical for ensuring your assets are distributed according to your wishes, alleviating stress and uncertainty for your loved ones.
Additionally, consider establishing Powers of Attorney to appoint someone you trust to make financial and medical decisions on your behalf if you’re unable to do so.
4. Diversify Your Income
Relying on a single income stream increases risk. Explore ways to diversify your income — whether it be investing, generating rental income, starting a side hustle, etc. Multiple income streams can provide added security if your primary source of income is disrupted.
Common Financial Mistakes to Avoid
Your mindset and behaviours play a significant role in your ability to weather unexpected financial expenses and events.
Over-reliance on credit: High-interest credit cards and loans can worsen financial stress and led to a cycle of debt. Plan ahead and build savings to reduce the need for short-term credit.
Neglecting insurance: Many Australians see insurance as an unnecessary expense until it’s too late. Think of it as a proactive investment in your financial security.
Failing to adjust to life changes: Major life events like marriage, the birth of a child, or purchasing a property significantly impact your financial needs. Regular financial reviews ensure your plans stay relevant.
The Role of a Financial Adviser
As financial advisers, we play a crucial role in helping you plan and navigate life’s uncertainties and build a secure financial future.
Reviewing and optimising insurance coverage: Ensuring you have the right protection to safeguard your family and assets.
Building a comprehensive financial plan: Aligning your financial strategy with your life stage, goals, and values.
Providing ongoing accountability: Helping you stay focused on your financial objectives and adjust your plan as your situation evolves.
Guiding you through major life changes: Offering expert advice when facing significant events such as marriage, starting a family, or retirement.
Taking a proactive approach: Anticipating potential financial challenges and opportunities, helping you stay ahead of life’s uncertainties.
Final Thoughts
Life is unpredictable, and while we can't control every event, we can control how we prepare for them. With the right preparation, you can create a financial foundation that allows you to face life’s uncertainties with greater peace of mind.
By building an emergency fund, securing adequate insurance, and developing a comprehensive financial plan, you can create a safety net that allows you to focus on what truly matters.
About the Author
John Cachia is a seasoned financial adviser and dedicated parent of three boys. With a passion for financial literacy and wealth management, John has been in the industry since the young age of 14. His early start in finance has provided him with a wealth of experience and insight, which he now uses to guide families towards achieving their financial goals. As Australia's leading wealth adviser for young families, John is committed to helping parents become positive financial role models for their children, ensuring a secure and prosperous future for the next generation.