So much information on personal finance focuses either on the basics of budgeting and debt elimination, or on the sexier stuff of investing and wealth-building. Hardly anyone talks about building a foundation which supports all of that stuff.
This is SO important that without it, everything else we talk about can be wiped away in no time at all, so why would you leave that to chance?
I battled a bit with what to call the episode this blog series is based on. I didn’t want to call it just the ultimate guide to life insurance, because it’s actually broader than that; we’re taking into account other kinds of insurance than just life insurance today. Wealth Protection seems to ‘cover’ – LOL – the gist of the message, and so that’s what I settled on.
This really is about protecting our wealth. As ever, it’s not the money which is important, but what it enables us to do that is important to us. And so, like anything precious, our wealth deserves to be protected, and that’s what I’m going to talk about.
You Need a Sure Foundation
Long-time listeners of my podcast and readers of my book (petesbook.com) and blog will know that I tend to talk about life insurance and wealth protection as laying a foundation. When you build a house, if the foundation is poor, then the entire house is in jeopardy.
A house on my own estate completely collapsed a few years ago because its foundation was flawed, and our estate is built on wet ground – it used to be a marsh years ago. So, you need the right foundation to support the thing that you’re building on top of it, otherwise everything is in question.
I often see houses built on clifftops – when they were built, they were half a mile away from the edge, and now they’re not – and all I can think of is how long it’ll take coastal erosion to undermine those houses and they’ll fall into the sea.
Whatever you’re building, and in this context, we’re talking about wealth which will give us choices about how we live our lives, it needs to be built on a sure foundation. If it isn’t then the whole thing can disappear, and often that will be quick, total and catastrophic. Think of this as a foundation on which you are building.
Know Your Risks
So, what might go wrong? Well, when building wealth, the primary tool at our disposal is our ability to earn a living. Most of us build wealth slowly, over time, by employing the tools we’ve been talking about over the past couple of ultimate guides.
Budgeting, eliminating debt and putting our money to work. There are other tools too like leverage and compounding, all of which we’ll get to in future blogs, but for most of us, our income is everything.
If we no longer have an income coming in then we can’t pay our bills. If we can’t pay our rent or mortgage, we’ll lose our house. We’ll get further into debt, most likely. Everything starts going south quickly.
Until we get to the point, often called Financial Independence or FI, that we have enough in income-generating assets or assets that we can draw from, then we need an income to move forward. Really, it is our income that we need to protect.
What might happen to us that might cause our income to disappear? These are the risks we’re need to protect against:
Firstly, we might die. While we’ll no longer be around to worry about it, there’s a good chance that we may have commitments to other people, like mortgage lenders or other creditors but more importantly, the people who we care about, and who depend on us to some extent. If we’re no longer around to support them and contribute to our shared financial future, then they’re in trouble and will certainly have some difficult decisions to make.
Secondly, we might get ill and be unable to work. There are a million things that can go wrong here. Either we can contract something serious, like cancer, or have a stroke, or Motor Neurone Disease.
Or it could be a ‘lesser’ ailment like a chronically bad back or an invisible-but-no-less-debilitating mental illness. We may get some short-term help from our employer, and some will get more than others, but most of us couldn’t live very well on Statutory Sick Pay or Universal Credit.
And even though we could survive, we likely couldn’t build for the future – we’d be existing, not building, and probably dreading the next unexpected bill, or fretting about having to move because we can no longer afford the place we’re in.
Finally, we might lose our job due to redundancy. Plenty of people are facing that right now (the original podcast episode was recorded in October 2020) with the Coronavirus furlough scheme coming to an end very soon. In this situation, we’ll still have our health and hopefully be able to go out and find work, but it might take a while, depending on lots of factors, so how will we cope with that?
Premature death, inability to work due to illness or accident, and redundancy – these are the three primary reasons we might lose our income, and we need to talk today about how to ensure that even if one of these things happen to us, our financial future, or that of the people who depend on us, isn’t completely derailed.
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