Liam Croke: Have you a financial back-up plan in place?

When we started off developing our online portal My|Money, because it was primarily going to be a software project, one of the first questions we asked ourselves and our software partners was – what happens if the site crashes or a virus takes hold of it? Are we going to lose all of our data? The answer was that if either of these events occurred, all our hard work would not be lost – we had a Plan B ready to implement straight away.

When we started off developing our online portal My|Money, because it was primarily going to be a software project, one of the first questions we asked ourselves and our software partners was – what happens if the site crashes or a virus takes hold of it? Are we going to lose all of our data? The answer was that if either of these events occurred, all our hard work would not be lost – we had a Plan B ready to implement straight away.

The same principle applies to many other things in our lives. For example, we have a spare tyre in the boot of our car just in case we get a puncture. If we do, we have a back-up plan in place – we can replace the punctured tyre with the spare and we can continue on our journey. If we didn’t have that spare in the boot and we get a puncture then we’d have a bit of a problem.

I remember a couple of years ago, there was one particular week where I got two punctures and for a couple of days I was driving around with no spare tyre in the boot. I remember very clearly that every time I got in to drive the car, the first thing that struck me was, ‘If I get a puncture, what am I going to do?’

Suffice to say, I got the spare fixed and the minute it was back in my boot, my anxiety left; me I didn’t think the worst any more because I knew if anything happened I would be alright.

This got me thinking about people’s finances and whether they should apply the same method to their own finances as we did with My|Money.

For example, what happens if a family member was to die? What happens if your house is damaged in winter storms? What happens if you lost your job? What happens if you were to suffer a serious illness? What happens if your son or daughter wants to go to university at Yale?

There are many different circumstances and events that are unavoidable and beyond our control that could have a significant impact on our health and financial lives. The key is that should something happen, we are ready with a back-up plan – our Plan B.

Take, for instance, the death of a partner. If your partner is the main or only breadwinner in your household, what would happen if they were to die? Is your Plan B having to go back to work to make ends meet? Does it mean your kids won’t have the opportunity to go to college? Or is your Plan B, knowing that the life policy they have personally or through work will replace their income if they were no longer alive?

What if you lost your job? Where is your spare tyre? Can you open that boot and take out your savings statement which shows that you have money set aside in an account that would cover you for a number of months until you get a new job? Or is your Plan B to make yourself so valuable to your company that could never do without you?

What happens if you suffer a serious illness? Don’t think it mightn’t happen. A friend of mine was telling me about her sister who suffered a stroke a month ago at the age of 47.

Thinking her employer was going to pay her income whilst she was off work, her family has since discovered that they won’t.

Had she taken the time to find this out, she might have done something about it herself but she didn’t and just presumed that either someone else was going to look after her or that a serious illness would never happen to her. How could it? She was so young.

Big mistake. Don’t assume it will never happen to you. So, what is your Plan B if you suffered an illness - and it doesn’t have to be a life threatening one, it just has to be something that prevents you from working – what then? Not being able to pay your mortgage? Not being able to tax your car? No oil or gas to heat your home?

What happens when money in a savings account is not enough? This is where back-up plans revolve around insurance. Yes, of course, insurance still involves and costs money but it is so important, it really is. If you ask yourself a question regarding an adverse event happening like your home being damaged by flooding or a fire, a child becomes ill and needs expert medical attention or whatever it is and the answer is not good and you wouldn’t be able to cope if it happened, then you should insure, no question.

An exercise I carry out with people when I meet with them about having a financial back-up plan in place, is getting them first to write down on a sheet of paper or on a computer, the various things that they would not like to happen i.e. job loss, death, serious illness and so on.

I then get them to rank each occurrence in order from most important to least important and then, acrosss from each scenario, write down what back-up plan they have in place if that event occurred.

The reason for doing this is to show exactly what is and isn’t in place, because if you don’t know or thought about what would happen, then you have no idea what you need to do. And the reason for ranking them is because I absolutely appreciate that there is only so much money to go around each month, so you have got to apportion your funds to areas that you fear the most and want to protect against and everyone will be different.

Having a back-up plan is so important, and like anything else it is better that you are proactive about these things because if something does happen, you are prepared, and you can make informed, well thought-out decisions rather than reacting to a situation you hadn’t planned for and you then end up making emotional and irrational decisions.

Remember – hope for the best, but prepare for the worst.