Everyone should have a "rainy day" or "emergency" fund of money. None of us is bullet proof.
A financial planner said to me recently that the average Kiwi is three weeks from bankruptcy if they lose their job. That's probably an exaggeration – because most people could sell household goods, cars, and other toys to make ends meet for a short while or perhaps borrow from friends or family. But it's food for thought none-the-less.
It's in difficult economic times such as those we’re experiencing now - thanks to the credit crunch emanating from the United States - that this is the very time when people might have to dip into their emergency funds.
Many Kiwis rely on credit to tide them over the difficult financial times, but ironically credit is much more difficult to get than it was when the economic outlook was rosier 12 months ago.
Up until recently many a Kiwi simply extended his or her mortgage to cover financial short falls. But credit is becoming much harder to come by thanks to the collapse of finance companies and a new conservatism among mortgage lenders. It’s no longer guaranteed that you’ll get a loan when you need it. So how would you cope if your mortgage was recalled or you lost your job unexpectedly?
This is all the more apparent with the collapse of Blue Chip where some investors are saying publicly that they’re facing mortgagee sales after just a month or two with no rent, or even worse, the fact that their rent has dropped to market levels, which they’d never budgeted on.
Lots of property investors are paying $100 to $200 a week or more to prop the mortgages up on their investment properties. If those investors were to lose their jobs, they could if their mortgages were linked, lose their own home. Don't scoff. It’s happened before and it’s all the more likely to happen in the near future.
Many people have income protection insurance, which can be good if you can claim on it. But beware of the small print, all sorts of claims are declined because they don't fit the standard wording.
The experts say, and it's common sense as well, that you need three to six months of easily accessible living expenses built up. Even more would be better – providing you've got it in an instant access account or investment earning a good return.
For more information take a look at the video from Money TV below.
How would you survive if your income dried up tomorrow?