Diana Clement: Don't let bad luck knock you off your perch

Struggling to pay the bills for whatever reason is never fun. Photo / 123RF

COMMENT: Life is full of risks.

The "she'll be right" attitude of Kiwis carries us through many upheavals.

Yet a little bad luck can knock Kiwis off their perch, says Russell Hutchinson, managing director of Chatswood Consulting Limited, a financial services management company.

You may have a baby with disabilities or conditions that mean you can't go back to work. Or your house may be destroyed by an earthquake. Your car could be written off by your uninsured child. The value of your home may drop just as the bank calls in the mortgage.

Many of us also never consider what happens if we lose our job, have to take time off to care for others or have an accident and can't work.

Risks can come from left field. Property investors can be hit by share market maelstroms that lead to their own, or tenants' job losses. Likewise, a couple of decades back most Cantabrians never expected thousands of homes to be destroyed or red-stickered thanks to earthquakes.

"Trouble can come to all of us, whether healthy or not," says Hutchinson. "So planning and taking advice makes sense."

Have a plan
It could be anything from having a small Trade Me or Amazon business going on the side so there is cash flow coming in during a stint out of work, to living in fewer rooms and letting the other rooms. Someone I know retired early and rented their house out while they took off in a campervan.

Budget for disasters
Don't be three weeks from broke as many Kiwis are. "Having a cash cushion, an emergency fund, makes a huge difference to your ability to face everything - from the need for unexpected work on your car to receiving a cancer diagnosis," says Hutchinson.

Start by creating a budget/spending plan to keep your outgoings well below your income. It might cover things such as over paying your mortgage or using revolving credit wisely.

Communicate with your family
It's difficult working out how you allocate resources between paying down the mortgage, investing for retirement and paying for insurance to cover risks. "I suggest talking with an adviser who is also wise enough to look at wider life issues: your values, like reducing your carbon footprint, and your opportunities, like advancing your education so that you can earn more," Hutchinson says.

Get insurance
Some risks are too large to effectively save for, says Hutchinson."What if you cannot work for two years? Or even the rest of your life? If such a disability happened more than 10 years before retirement, it would be financially devastating for most households." Home, contents, car, health, disability and income protection insurance cover many of these risks. ACC is also insurance. But don't forget to cover for loss of income caused by illness. It's more common than disability from accidents that ACC covers. Taking advice from a professional can be worthwhile.

Avoid debt
Yes you can afford the repayments now on that car loan, new kitchen, or iPhone X but when the proverbial hits the fan you may not be able to.

Become more resilient
We all know or know of people who become depressed when disaster befalls them. Seeking psychological help or counselling is not a sign of weakness. Quite the opposite. Likewise it's natural to want to help friends and family who find themselves in a difficult position. Sometimes just offering an ear can help.

Don't overreact
A letter to my colleague Mary Holm last week from a reader worrying about his KiwiSaver pot being affected by market falls caused me to raise an eyebrow or two. If you have no plan to retire or buy your first home in the next 10 years then your KiwiSaver will recover from even another GFC-style market crash. Volatility and risk are different things.