protect-your-income

5 tips to financially protect yourself

While you might not enjoy thinking about it, sometimes the worst strikes. If you’re suddenly unemployed, injured at work, or an economic recession hits, your financial independence can run into trouble. However, while you often can’t predict these scenarios, you can certainly be prepared for them. To keep your finances in shape during a crisis, this is what you need to consider.

Keep your personal finance in check

It’s not an easy task to keep track of your personal finances throughout the year. If you haven’t lodge your tax return for 2016-2017, lodging online with my Tax is the easiest way to do your own tax. It’s due by 31 October. You can either hire an accountant for some good financial advice or do it yourself. Either way can provide a good understanding of your finances. After that, it might be good to set a financial goal in mind and start to form good habits.

  • Use smart technology to keep track of your monthly spending. If you spend more than your earn, it might be helpful to figure out the causes and cut down expenditure accordingly.
  • Set up savings account. Transfer fixed amount of money to the saving account religiously and resist the urge of withdrawing them for “special occasions”. The trick is to put aside the money at the beginning of every month.

Prepare for the worst

Financial independence has many benefits. It gives you more control over your finances, the ability to work to your own schedule, and boosts your self-esteem. But perhaps most importantly, it allows you to prepare for a crisis – on your own terms.

The truth is, job security is never set in stone. For a traditional employee, you’re usually answerable to a single boss. You might produce work for the company’s clients, or help a customer with your know-how and expertise, but at the end of the day, your performance is still reviewed by one person.

If you’re not up to scratch in their eyes, you can easily lose your job and fall financially behind. A secured personal loan can be a good option to cover yourself should you ever find yourself in between jobs. There are a lot of them to choose from but I found this page to provide a lot of information about how it works.

On the other hand, if you’re a successful business owner, or you’re comfortably self-employed, you have more control over your job security. It’s up to you to determine the growth of your business, the marketing of your services, and the payment of your own bills.

When you’re in control and answerable to nobody but yourself, you’re inherently better prepared for when things go south. While achieving and maintaining financial independence takes hard work, it allows you to plan ahead and tackle worst-case scenarios on a more level playing field.

Cover yourself with income protection insurance

If you get injured or sick and it stops you from working, how will you foot the bills? The simple answer is income protection insurance. When we’re young, we often feel invincible. But even with a stable income in a solid job, there’s no way to predict the future. So when the worst happens, and you’re not prepared for it, your life can become a whole lot trickier. However, income protection insurance can help you manage your expenses when you can’t do it yourself.

Still undecided? Then ask yourself these two simple questions:

  • Do I have financial commitments that depend on my salary?
  • Do I have loved ones who also depend on my salary?

If the answer is yes to either – it’s time to look into income insurance. But before you take out the first policy you come across, do your research, get expert advice, and find the right cover to suit your needs, budget and lifestyle.

The bottom line is, protecting your income helps you keep up with repayments, provide peace of mind for you and your family, helps maintain your lifestyle, and gives you the breathing space to get things back on track.

Diversifying your financial portfolio

If you’re hoping to become financially independent, it’s time to be more thoughtful and proactive about investing – especially when it comes to diversification. Put simply, diversification helps you weather the ups and downs of financial markets by spreading your money across different asset classes. This means you’ll be less exposed to a single economic crisis, so if one business or industry you’ve invested in isn’t going so well, you won’t lose all your hard-earned money.

It’s best to think of diversification strategically. It mightn’t be a “get rich quick” type deal, but it will reduce your overall investment risk and the potential of bad returns. The truth is, you can’t predict the future, and if the company you’ve invested all your money in suddenly goes bankrupt, you can too.

So how do you start diversifying? The basic aim is to have a portfolio that includes both high risk and reward investments, and low risk and reward investments. You need to think about the major asset classes, such as cash, fixed interest, bonds, property, and shares – and choose different sectors within each.

To be honest, it can be tricky to wrap your head around investment lingo and diversification, but you can always seek out the expertise of a managed fund, or talk to your superannuation fund about changing up your portfolio.

Having a rainy day fund

Even if your investment portfolio is solid, your business is thriving, and you have income protection insurance, it’s still important to have a rainy day fund. That is, an emergency amount of money to cover the costs of surprise expenses. Having this money set aside means you won’t have to dip into your longer-term investments if you need quick cash.

So how do you build your rainy day fund? The trick is to smart small and keep at it. It doesn’t matter how little or how much the amount is, the important thing is that you do it consistently. Even $20 a week adds up to over $1000 dollars a year. As a general rule of thumb, your rainy day fund should cover living expenses for around for six months.

To get cracking, consider opening up a high interest savings account with your bank and setting up automated payments. Get into the habit of budgeting, avoiding impulse purchases, and putting all your spare change into a piggy bank – you’d be surprised at how quickly things add up.