Be prepared for when bad things happen: Why you need an emergency fund – RN


Posted

March 27, 2018 08:00:00

Five years ago, Mandy McCracken went to bed with what she thought was a bad case of the flu.

In a matter of hours, she was in hospital, fell into a coma and was diagnosed with a massive bacterial infection.

Her organs began shutting down and her limbs were amputated to save her life.

“I was 39 when this happened to me. I came home 10 months later with no arms and no legs,” she said.

“We were living the worst-case scenario.”

Life changed quickly for her husband Rod and their three children living in regional Victoria.

For Mandy, learning to walk again, with new prosthetic limbs, was the easy part.

“The hard part is coming to terms with the change in your life,” she said.

“Rod left work that day I got sick, and hasn’t gone back to work since.”

How a financial buffer helped

With limited income, at times the McCracken family struggled financially.

Fortunately, they had a small financial buffer and insurance, which paid out enough to cover their mortgage and school fees.

“We had a great financial advisor who set up life insurance, did the whole total and permanent disability insurance as well,” she said.

“For us the worst-case scenario is not dying, it’s surviving and having to financially deal with that.”

The couple had overlooked getting Rod across the household finances, which Mandy usually took care of.

“I had all the codes for all our bank accounts and everything in my head and there I was asleep in hospital in ICU,” Mandy said.

“Rod got a bill due but didn’t know how to pay it off because I’m the one that did that.”

He also didn’t have enduring power of attorney or medical power of attorney.

“I just took a photo [of Mandy] on my phone, went into the bank and said ‘hi this is my wife and the bill is due in two days’.”

Have a separate bank account

Financial planner Kate McCallum said people are often blindsided by things that haven’t been on their radar.

“You’ve got to make sure you do as much as you can to plan and then be in a position where you deal with the blows when they happen,” she said.

“It means you’ve got a little more energy to focus on the emotional side of things and the practical side of things.”

She said everyone should have some savings set aside for emergencies, preferably a separate bank account that they do not touch.

“As a rule of thumb I would suggest people have six months’ worth of their expenses,” she said.

“Income is a bit of a variable, but if you know what your expenses are you can have a buffer that gives you a chance to get your feet back on the ground.”

If you have no cash savings, she suggested building a fund up slowly, perhaps putting aside a small amount each week.

“The first thing I’d recommend is to set up automatic payments and pay yourself first,” she said.

“An emergency fund is no different to paying rent or mortgage, it’s a non-negotiable.”

Look at insurance

Australians are underinsured to the tune of $12.8 trillion per year, when it comes to life, total and permanent disability and income protection insurance, according to actuarial research firm Rice Warner.

While most people have insurance through their super accounts, it may not be enough.

Although the insurance industry has suffered scandals in recent years, Ms McCallum said when it comes to emergencies, insurance is a must.

“It’s important to find out what you’re covered for, how much you will get paid out and how much you are currently paying in insurance premiums,” she said.

“Ask yourself, what’s excluded from this, what are the circumstances where I wouldn’t be able to get a benefit from this policy?

“Also, what are the things I need to think about so I have sufficient funds to cover me in the instance where I’m not going to get paid in that time frame.”

Mandy said everyone should think about having a safety net.

“You may never need it and you might be able to spend it on a trip to Paris one day,” she said.

“You’re bigger than yourself when you’re a grown-up and responsible, so stop, think and set yourself up.”

Topics:

consumer-finance,

banking,

family,

health-insurance,

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