Strong savings weather the storm

Lisa Dudson. Photo / Supplied

Credit crunch, storms, earthquakes and floods - we need to be more prepared than ever for the unexpected. If one of these events hasn't affected you then its highly likely it has someone close to you.

A few years ago I remember seeing a cartoon: "New Zealanders can retire quite comfortably today ... until 2pm tomorrow." Do you have money put aside for that rainy day? So many of us have been living a life of consumerism and have been more interested in consumption. The recession has made many of us think a little more about what we are doing with our money, however, there is still vast room for improvement.

Ask yourself: have I got some rainy day money and are my insurances up to date?

Rainy day money

The financial services industry suggests you have three to six months' worth of your expenses put aside. To work out how much that is for you, look at your budget and see how much your expenses are each month. If you don't have a budget then write down a list of all the things you need to spend money on each month and total it up. For example, if you need $3000 you will need at least $9000 in your rainy-day account.

If you don't have these funds you can start saving a certain amount every pay day to build it up. If you have some liquid assets (assets that you can sell quickly to get cash) like shares or bonus bonds then these can be used if needed. Using your revolving credit or flexi facility on your mortgage is an option as you only pay interest on the money you use. Beware though: these mortgages can be fantastic tools for efficiently managing your money but only in the hands of those with good discipline and those who track their expenditure and have a clear understanding of how to use such facilities. In my experience most people don't.

Insurance

Many of us think we won't ever need insurance. In the past month I've had one client with a young family die from cancer in their early 40s and another pass away suddenly, also in their 40s. One had very good insurance cover and the other very little. The choices the family had with the good insurance cover are so much greater and their financial life will be much easier in the future.

It's not uncommon for people to not have reviewed their insurance policies for many years. Reviewing your insurance cover is not necessarily about getting more; it's about being clear about what you do have and ensuring it's right for your current situation.

When we take out insurance policies many of us don't read the fine print and are really not aware of what coverage we have, nor do we review our cover routinely.

Given recent events, now is a good time to read through your policy documents and clarify what you are covered for. Sometimes the documents are not that easy to understand so take the time to call your insurance company and get them to explain the details to you.

The recent earthquake in Christchurch was a good example of how something can happen completely out of the blue. Government assistance and donations from around the country have poured in. And while most people will be covered by their insurance, many will still be affected financially. For those who did have some money put aside and had adequate insurance cover, I'm sure the financial burden has been eased.

Some may say that at a time like this it's not about money, but there is no doubting that having some money set aside provides more flexibility and choices. So, are you prepared for a financial earthquake?

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