One question to test your financial resilience

How long could you cope financially if you stopped receiving your income? A year, six months – a few weeks? The answer to this question is revealing.

According to recent surveys, most employed Kiwis have less than six months’ worth of expenses saved, and two in five people surveyed would be unable to access $5,000 if something unexpected happen. What’s more, another survey found that 20% of people surveyed would only be able to cover their living expenses for a week or less, if they lost their job tomorrow.

The good news is that there are steps you can take to bolster your financial resilience – starting now.

Harness the power of a clear budget

Creating a budget means learning to choose where your money is going. Sometimes, a budget may reveal ‘money leaks’ and opportunities to save that were hiding in plain sight.

Over the next few months, make sure you keep track of any income and spending, including one-off expenses. Then, set realistic spending limits for each category: even small savings can add up significantly over time.

Need help? It may be a good idea to seek advice from a professional financial planner. They can help you better understand your current situation and get organised.

Tackle your debt head-on

There are many reasons to pay down your debt as fast as you can. High levels of debt, especially of the high-interest kind, can make you vulnerable – especially when interest rates rise. It means that you have less money to spend on other things, or save for the future. Plus, the longer your debt lingers, the more expensive it gets due to interest costs.

Once again, getting a handle on debt is something that a financial planner can help you with.

Create a fund for ‘rainy days’

With the rising cost of living stretching budgets, putting money aside for emergencies can be challenging – but it’s even more important. A good rule of thumb is to save at least three months’ worth of household essential expenses. But it could be more, depending on your needs.

Get insurance for your most likely risks

Getting appropriate insurance cover is a great way to protect your financial future and build resilience in your financial life. There are many different solutions available, based on your circumstances. For example, if your household depends on your income to cope, life insurance and income protection may be a good place to start.

This doesn’t make your emergency fund redundant. In fact, if you have good-sized one, you may afford to choose a longer waiting period on your income protection, or a higher excess on a health insurance policy – all options that can lower your insurance premiums.

And as you focus on paying down debt (like a mortgage or a big personal loan), insurance can help you avoid the repayments falling onto your loved ones, should something happen to you.

So here’s the bottom line: there are many ingredients to the financial-resilience recipe. And it all starts with a key question: how long can you and your family cope financially without earning an income?