Expect the unexpected when planning your finances

When it comes to making budget priorities, planning for the unexpected can often get short shrift. And no wonder. Who really wants to prioritize emergency funds or insurance premiums over goals like owning your own home, making sure your children get a great education or putting money toward a cause that really matters to you?

Perhaps what’s needed is a shift in thinking. It’s precisely because your other goals are so valuable that a plan for the unexpected is so important. Without a proper plan in place, a sudden emergency—a loss of income for you or your partner, say, or an unexpected expense—can put all your carefully budgeted-for dreams in jeopardy.

Okay, so planning for the unexpected is important—but what should I do first?

The most basic way to plan for the unexpected is to set money aside in an emergency fund. As an ideal minimum, it’s recommended that this fund be enough to cover your core expenses for three to six months.

Depending on how tight your budget is, however, having this amount on-hand might be easier said than done. If this sounds like you, a good idea is to set up an automatic monthly or bi-weekly transfer into a high-interest savings account. By continually putting even small amounts into your emergency fund, you’ll at least have something to turn to when life goes sideways, putting your other budgeting priorities at risk.

What about insurance?

There is nothing fun about paying insurance premiums, and unfortunately, some of us just can’t afford all the coverage we’d want in an ideal world.

The key thing to remember about insurance, however, is that your coverage—and hence the premiums you pay—can be tailored to your budget. You don’t have to get a complete, comprehensive package all at once if that’s beyond what you want or can afford right now. That said, it’s important to note that there is an advantage to getting insurance earlier than later, before a health change might make what you want more costly or impossible to get.

No matter what your budget, if you’re interested in buying insurance, your first step should be to talk to an experienced insurance broker or trusted financial advisor, one who will take the time to guide you through an in-depth needs assessment and educate you on the full range of insurance options available. Remember, the ideal coverage is the coverage that fits your specific needs and goals, and your advisor should take the time to get to know what those needs—and limitations—exactly are. If they don’t, it’s time to find one who will.

Any inside tips?

Whether it’s life insurance, disability, critical illness, long-term care, or some combination of the above, insurance isn’t one-size-fits-all. Everyone’s needs and wants are different. That said, there are a few general tips that are good to keep in mind as you think about buying insurance.

Don’t go with an insurance salesperson representing only one insurer. Go with a broker or financial advisor instead. The basic difference between an insurance company salesperson and a broker or financial advisor is that the former represents only one company, while the latter two will provide you with options from a range of companies. With greater choice, you can greatly increase your chances of finding the right insurance for you.

Don’t wait. This isn’t a pushy sales pitch. It’s a reminder that the process of actually applying for insurance can be a lengthy one, with long application forms and checkups to go through. Only at the end of this process will the insurance company offer you coverage anyway, and at that point you can always turn down or modify your choice based on the new estimate. If you wait to start the process, however, your circumstances might change in the meanwhile, losing you the chance to get the coverage you really want.

Consider paying the premiums yourself. Many of us have disability benefits that are paid for by our employers. Fewer of us know that those benefits become taxable income when paid out. To avoid paying tax on your disability insurance income—and if it’s an option—pay the premiums yourself. You might also want to consider getting your own, separate disability policy, one you can take with you if you change jobs or become self-employed.

Interested in making your own plan for the unexpected? Set up a meeting with a local Vancity Wealth Protection Specialist today.