Many people understand the importance of having income protection, but either haven’t gotten around to it or don’t view it as a priority. That might be changing soon, as findings from a recent ING DIRECT report have revealed that nearly half of Australia’s households are in a risky position when it comes to household income.
The ING DIRECT Household Financial Fitness Test, which measures the financial fitness of households, has found that 49% of Australian households would struggle after three months if the main income earner lost their job, and 37% of households would have only one month. When it comes to people to rent rather than own, 58% of renters would have only a month before their financial situation became dire.
ING also investigated how households would go with paying off a significant unexpected expense without their main source of income, and the results are just as worrying. According to the report, just under half (45%) of households would have a hard time paying off a $10,000 bill within three months, and 38% of households would need six months or more; a figure which rises to 55% when regarding renters.
These are sobering figures, especially when considering the fact that in 2014 only 31% of Australians held income protection insurance. Income protection is a vital policy for any working Australian, especially working parents and homeowners, so it’s important that you understand what income protection is and what it’s for, and then go out and get some for yourself.
What is income protection?
Income protection insurance is a form of life insurance that provides you with a source of income if you lose your job, or are otherwise made unable to work. Although it’s a vital thing to have, many people don’t view it as a priority for a number of reasons; they feel that they’re secure in their current job, or they might view income protection as just another unnecessary expense.
But while your boss may like you, accidents do happen, and if you’re rendered unable to work via sickness or injury you’ll be stuck at home with no income. And keep in mind, your income might be on a temporary hiatus, but your bills won’t be.
Essentially, income protection insures you for a set level of your income (commonly 75% of your gross salary) for a certain length of time. In the event that you cannot work due to illness or injury, your income protection insurance will continue to pay you at the agreed level and for the agreed length of time. Read this article for more information.
Savings are the next best thing
Sometimes not being able to work may be due to losing your job rather than losing your health. In this situation, it’s important that you maintain and grow a nest egg that you can dip into in case of financial hardship. It won’t last forever, but it may help in smoothing over the rough period in-between jobs, and save you from the worst repercussions of financial stress. Here are five great saving tips for building a nest egg:
- Cut out unnecessary expenses – Spending $5 a day on coffee? Make a thermos of instant at home, and put $25 per working week in your savings account. Taking cabs everywhere? See if public transport can get you where you need to go, and save some significant dollars in the process.
- Draw up a budget – If you create a budget for your daily or weekly expenses, which will help immensely in regulating your spending, and giving you a clear idea of how much you can spend and save per week. Most people will find that they can save much more of their pay than they thought, and a budget is the perfect way to figure that out.
- Smoking? Stop. – There is literally no good reason to smoke, but if you’re having a hard time quitting, consider this; for a pack a day smoker, cigarettes will cost them at least $6000 a year. Don’t you think that money would serve you better sitting in a savings account, rather than taking years off your life?
- Avoid unnecessary debt – If you’re a bit of a reckless spender when it comes to your credit card(s), then find the nearest pair of scissors and cut up that plastic. Nothing hinders saving efforts more than having to pay down credit card debt, especially once it’s been accruing interest for a while. Stick to spending money you have using a debit or key card, and never pay a dollar in credit card interest again.
- Find an optimal home for your money – Saving money is all well and good, but to make the best of your savings you should really find them a nice high-interest account to live in. Many online savers offer high interest rates and little to no fees, so have a look online and see what you can find. But wherever you put them, make sure it’s somewhere better than a 0% p.a. transaction account.