In this lesson you will learn 💸
- What a good ‘safety plan’ looks like
- How to include a safety plan in your budget
Unexpected events life might throw at you
- Death of a loved one
- Illness or disability
- Separation or divorce
- Job loss
- Bankruptcy
- Natural disasters
What is a safety plan?
By creating a ‘safety plan’ (also known as a ‘safety net’ or an ‘emergency pot’), you put money aside for emergencies or unexpected events and put steps in place to counter any sudden financial demands that you might face.
What can I include in my safety plan?
There are two types of insurance you can consider:
- Private insurance: life insurance, income insurance, disability insurance for example.
- Public or ‘Statutory’ insurance: Jobseekers’ Allowance, Personal Independence Payment, Housing Allowance for example.
Government benefits can take time to arrange, and may not cover all the costs of your emergencies, so it’s a good idea, where possible, to also get private insurance in place.
On the other hand, you have your savings - this ‘safety net’ is money that you keep in a savings account, so that it will always be easily accessible.
Aim for a safety net worth 3-6 months’ salary, which is based on the fact that the most common emergency is job loss, and it takes, on average, 2-3 months to find a new job.
I don't have 3-6 months salaries to put aside right now....
It's not a problem at all to build-up your emergency fund up over time 😊
Set yourself a time goal for when you want to complete it, or, scan your budget for hidden money wasters (see also the next lesson) and set money aside you can spare, regardless of how small! The important thing is, that you start working towards it.
Your action 📝
- Make a list of emergency situations you believe are likely to occur in the next 3 years.
- Detail all the insurances you currently have, what they protect, how much they will pay out to you or your family, and any premiums you might be charged.
- Figure out your financial ‘needs’ vs. ‘wants’, and what you could do without in case of an emergency.
- Start saving an ‘emergency fund’ in your budget, working out how much you can reasonably pay each month to start building up your 3-6 months’ salary figure.