Emergency expenses can pop up when you least expect it. Footing the bill can be equally expensive. As many as 58.9% of Australians plan on using their savings to take care of emergency expenses, but this could put many people at risk of falling into a debt spiral.
Not many Aussies are financially prepared to face emergency expenses
Saving is one of the primary ways in which Aussies plan on taking care of their emergency expenses. A survey by Noble Oak revealed that 58.9% Aussies would fall back on their savings should they contract a major illness or suffered an injury. 41.7% revealed that they would turn to their life insurance which comes with policies such as Income protection, TPD, and Trauma insurance.
Having a rainy day fund is not enough
Putting money aside for those unexpected expenses can come in handy when faced with minor expenses for your car or house. However, relying on your savings for major expenses such as taking care of critical illnesses or sustaining an injury that leaves you temporary or permanently disabled can drain your finances significantly.
The survey revealed that there is still a significant number of Aussies that are placing themselves at the risk of becoming financially exposed. 29.1% of Aussies stated that they would turn to family or friends to assist them during their time of need, 22.1% will sell their investment property and 15.2% of respondents were willing to go as far as selling their family home should they fall critically ill or sustain an injury that prevented them from working.
Having a safety net that will cover you for at least 3 months can be beneficial to cover expenses such as rent, utilities, food, and transport. However, for those large expenses, you could find yourself taking out loans in a hurry without carefully considering your options. This can easily cause you to fall into a debt spiral as you play catch up to pay off loans and expenses.
Having life insurance can reduce your risk of being financially exposed
There is a wide range of life insurance policies that can help you take care of you and your loved ones by ensuring that you are financially protected. Policies such as income protection, trauma insurance, and TPD are just some of the policies that you can use to take care of your everyday living expenses and medical expenses should you find yourself in a position where you are unable to work. Other things you can do to build a safety fund are:
- Opening a saving account that has a high interest rate to gain more on your investment. Automating your savings can also help you stick to your savings goal.
- Setting a realistic goal can help you budget according to what you can afford which in turn will ensure that you stick to your goal.
- Take out a life insurance policy if you do not have one make sure to compare your options to see if you are getting the best deal for your circumstances.