Enjoy the milestones while navigating the millstones

Paul Clitheroe explains how planning for the bad, as well as the good, could be the secret to managing your money better.

Researchers in Britain found people could manage their money better if they planned ahead for both the good - and bad - events in life.

It turns out the Brits often plan for the good things - like buying a home or starting a family. But far fewer people plan for difficult events because they don't like to believe those setbacks could happen to them.

It's a fair bet many Australians take the same approach. Understandably, no one likes to think about negative events, but many of us share common money worries based on 'what ifs'.

A survey by Finder for instance, found 58% of us worry about being able to afford a surprise expense like a medical emergency. That’s equivalent to 10.5 million adults who believe they may not cope financially with an unforeseen event. Two out of five people also worry about losing their job.

The thing is, it is possible to enjoy life's milestones while also navigating any millstones. The key is to have a pool of emergency funds.

Regular saving is the best way to build up a buffer against life’s curve balls. Everyone’s situation and ability to save is different, so it's important to find an approach that's right for you and your household.

If you earn enough to set a little aside each month that's great. Think about asking the boss to deposit a portion of your salary directly into a nominated savings account instead of your everyday account. Or set up your own electronic transfer to coincide with pay days. Unless your finances are very tight, chances are, after a few months you won’t miss it, but this sort of regular savings can grow to a decent balance, even if you start small and increase the amount with time.

I understand that for low income earners, saving presents a particular challenge. If household finances are already tight, then saving is difficult. But in my experience, we can almost always find areas where spending can be trimmed. Take a close look at where your money is going to see where you could cut back. The internet makes it easy to shop around on fixed costs like power bills, phone and internet plans to see if you could get a better deal and enjoy savings this way.

Be sure to check too that your personal insurance cover - including income protection insurance, is sufficient to protect you and your family if the unexpected occurred. This is an area where many workers tend to be underinsured, based on the assumption 'it won't happen to me’ but unfortunately it can - and sometimes does. So it pays to be prepared.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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