Protecting your income isn’t a luxury. When you factor in job loss or business closures and sickness, anyone with financial obligations should make sure they gave a back-up plan. But many people are complacent about future difficulties but any actuary will tell you the chance of losing your income – for whatever reason – is greater than you appreciate.
Forward planning is essential for you and your family’s financial security. You’d be surprised at the range of ways you can protect your income. Obviously everyone’s circumstances are different, but you can take steps to reduce your exposure to financial difficulties.
There are 5 main ways to protect your income.
Build Up Savings
Everyone should have a savings safety net. Not just because you may lose your income but for unforeseen emergencies. This is the best kind of back up fund because it’s flexible. You control it yourself and aren’t dependent on any third party. Get into the habit of saving on a monthly basis. Think of it not just as your rainy day money but money that could tide you over for up to six months.
One thing to think about is the type of savings account you’ll need. It’s important you have instant access to your money. So if you haven’t started saving make sure you set up an instant access account with the best interest rate you can find.
Get Income Protection Insurance
Income Protection Insurance is designed to pay out when you lose your income through accident or illness. It won’t automatically cover you for redundancy but you can buy an add-on. Generally it offers better protection than redundancy insurance which pound for pound can be very expensive and has lower payout rates. Income Protection Insurance is also fully underwritten so is tailored to your circumstances. One thing to consider is the level of cover you may already have through your employer or existing company policies. If your job offers some short-term sickness cover your income protection policy can be designed to work with it so it takes over when your job-related cover stops.
Build Passive Long Term Income
It never hurts to have additional income. Whether you invest in property or buy shares you can use the extra income to boost your savings. Investing in property may not sound attractive at the current time, but there’s plenty of cheap property about. You just have to buy a property that is suitable for generating significant cash flow. Shares also offer the ability to build long term income but you need to buy shares that pay healthy dividends. Be wary of buying and selling shares in companies to make short term gains – it’s not recommended for beginners.