Building a financial safety net is an essential part of contingency planning, especially if you are faced with a sudden crisis in your personal financial circumstances. Whilst this may seem a remote prospect, have you considered how you or your family would manage financially should you lose you job through redundancy or ill health? This article aims to enable you to consider the various aspects of building a financial safety net to secure your financial circumstances in the future.

1. Savings and Investments

Savings and Investments are often a good means of building a short term financial safety net to cope with a health problem that is likely to improve quickly or the result of redundancy or a career change. Ideally it is best to save the equivalent of 3-6 months in wages to deal with a financial emergency situation or unexpected set of circumstances. Savings and Investments are easy to access or cash in, should you need some emergency financial resources and are a great short term financial safety net regardless of your annual income.

Money Saving Tip: Money put aside for dealing with a financial emergency should be readily accessible. Whilst it is possible to get a better return by investing in a high interest savings account, these often require three to six months notice to enable you to access funds, which could be too late if your financial circumstances suddenly change. Instead consider placing these funds in an instant access savings account preferably an online one, where the you can get at your money quickly and reduce any stress of anxiety associated with obtaining your finances in an emergency.

2. Budget Planning

Budgets are often overlooked as too time consuming and tedious. Whilst this can be the case initially they can also help you understand where there are gaps in your personal financial arrangements and help you to save money by identifying unhelpful spending habits. Creating a budget is one of the best tools available for helping to build a financial safety net. It can help you identify how best to spend your money at the beginning of each month and critically, help you to plan what amount you can afford to put aside each month, even on a tight budget.

Money Saving Tip: Take an hour now to sit down and plan next month's budget and get an overview of your income and expenditure and what you can afford to save. This information will prove invaluable as you work towards building your own personal financial safety net.

3. Insurance Policies

Few people like paying out for insurance policies because we rarely need to use them. Whilst there may be some things we can do without, like extended warranties on electrical goods, failing to plan adequate cover for loss of employment or ill health can have serious financial repercussions. No one can guarantee that their health will always be good and not building a financial safety net is like playing Russian roulette with your future, or your family’s financial security.

There are so many insurance policies it can sometimes be daunting trying to establish which will be beneficial to your individual financial circumstances. I have highlighted a few of the key policies for further consideration.

a) Life Insurance

It is not pleasant facing the reality that one day we will die but ignoring the matter can leave debts and financial hardship for those we leave behind. One of the biggest mistakes is to fail to take out an adequate life insurance policy when we are younger, in the misguided belief that we don’t need to concern ourselves with this matter until we reach our forties or fifties. In actual fact the best time to commence a life insurance policy is in your twenties or thirties as this is when it is cheapest and will leave less of a dent on your financial arrangements. Waiting until later in life is likely to lead to significantly higher premiums and cost you more money in the long term.

If you are unsure about how much financial cover you will need then factor in the main debts you could leave behind, like a mortgage or loans and base your insurance cover on meeting these financial commitments as a minimum.

To compare life insurance policies to find the best policy for your individual financial needs visit www.moneynet.co.uk

b) Disability/Critical Illness Insurance

This type of insurance is worth considering, if for example like me, you are the sole wage earner in your family unit or live alone. I wouldn't recommend it for dual income earners as it can be expensive and providing one of you is able to work to meet your financial commitments you are unlikely to need it. This policy will set you back between £25-40 a month and will cover your mortgage repayments if you become seriously ill and unable to work.

c) Income Protection

This a better option than disability/critical illness cover, as it will pay out for your mortgage if you are unable to work due to redundancy and/or ill health. Research shows that the average time spent with any employer is now five years, gone are the days of a job for life. Insolvency in the business sector has also increased which means that the chances of being made redundant at some point in your career has also increased.

It can often take three months to a get a new job due to waiting for responses from applications, attending interviews and getting a written offer of employment. Income protection insurance can provide an invaluable financial safety net. You should expect to pay between £35-60 per month for this type of insurance plan.

This type of insurance is likely to be especially important to individuals who work in volatile industries such as manufacturing, service industry and even the arts.

d) Medical Insurance

In the UK the National Health Service does an excellent job at providing a base level of health care for all people. However there are sometimes occasions when private medical insurance can really make the difference between life and death especially where a delay in treatment could be fatal. Private medical insurance will ensure that you get treatment quickly should you need it, without having to consider financial cost implications. You should expect to pay a few hundred pounds per month for this type of insurance, but this can vary significantly on your current health circumstances.

4. Antiques and Collectables.

Antiques and collectables are often a great source of investment given that they hold their value at the very least and have the added benefit of being easy to sell if you need a quick cash injection. In addition if you wish to leave a sum of money to family after your death they won't be hit with inheritance taxes often associated with large amounts of physical cash. Perhaps one of the major drawbacks to investing in Antiques and collectables is the requirement of a level of technical expertise, or access to those skills, to ensure that suitable items are invested in. However, a small outlay to acquire these skills can lead to very lucrative financial rewards in the long term.

Money Saving Tip: Before you spend time and money investing in antiques or collectables always do your research well. Spend some time on the internet reading about your target items and visit local auction houses for 2-3 months prior to making a purchase so that you can get a feel for the average prices of desirable items. You can also use this time to network with other buyers and seek out their opinions and expertise for free, something that can only prove useful as you build your personal financial safety net.

Summary

This article has explored the many and varied means in which you can successfully build a financial safety net no matter what your income. For some this will involve short term savings, for others life insurance or income protection policies or a mixture of the two. One thing is clear, your financial safety net will need to be specific to your unique financial circumstances and the best avenue is to consult with an independent financial adviser for further information. You can visit unbiased to locate a suitable independent financial adviser in your area.

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