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How do you prepare for life's most unexpected and challenging moments?

October 29, 2020

There’s a saying that goes ‘change is the only constant in life’. So how can you possibly prepare for the big challenges that seem to come out of nowhere? You can be ready for the unexpected by thinking ahead financially and having an emergency fund in place.

watering can growing investment
You’re having a baby and suddenly discover you’re having twins or you’re facing a career change because you’ve been made redundant or suddenly you find out your health is on the line. Whatever drives a sudden change in circumstances, preparing for the unexpected before it happens can help reduce the stress – especially when it comes to loss of income and other financial worries.

Three life changing unexpected events worth planning for

Big things happen unexpectedly, and we can’t possibly cover every scenario of what to plan for. What we can do, is pick three common events that catch people off guard and share some ideas on what to think about including the financial impact.

Having a baby

cute baby sleeping
You've been trying for a while and finally get the good news or another baby is on the way, only this time it’s twins. Or maybe you weren’t planning for parenthood at all. Whatever the scenario, knowing a baby is on the way can raise many questions. Here’s some key things to consider and plan for:

  • Baby gear
    Who knew something so small could require so much? Clothes, cot, baby buggy, car seat and that’s just for starters. Will you borrow, buy new or second-hand? If you’re not even sure where to begin, Plunket has a handy essentials checklist.
  • Support network 
    Who’s going to help when the going gets tough? Partner, friends, family, or paid help?
  • Midwife
    Time to call in the experts and plan for the birth at home or at a hospital (private or public)? First step is to pick a lead maternity carer and go from there.
  • What does a baby mean for your income?
    If you’re working can you access paid parental leave - how much and for how long? How much time off do you want to take? And once that’s over what income will you have to live on?

Having a baby or two can bring all kinds of changes including in your financial situation. Having some money set aside at the ready in an emergency fund can help. You might also want to think about putting aside some funds for their future as they grow older.

Changing jobs

man at work with laptop and packages
Your career is tracking along nicely when suddenly something big like a global pandemic or natural disaster such as a fire, flood or earthquake gets in the way and changes everything. Whether it's losing your job, seizing a new opportunity, or having to retrain, sudden changes in employment can come at a big cost to your financial health and wellbeing. Consider the following:

  • Loss of income is tough at any time, especially if it’s unexpected. Having an idea of your weekly budget can help you regain a sense of financial control and reduce stress.
  • The Covid-19 pandemic has seen a big increase in people working from home. Are you set up for working or studying from home? Consider what else you might need or want to make it work for you and how much it might cost.
  • Computers, printers, a work car, machinery, or specialised gear … what tools of the trade would you need to get for your next work phase?
  • A change in career might also mean some kind of retraining, which likely comes with a cost. It could be anything from a short course to a full university degree. Taking on debt to cover the fees or a student loan could be on the cards.
  • Finding work or retraining could also mean having to relocate somewhere else in New Zealand or even overseas. It could be a temporary or permanent move – something else to factor into the cost.

Changing jobs unexpectedly usually comes with a price. If you don’t yet have an emergency fund aside there are other avenues that may be able to help as well.

Facing a health scare

doctor with surgical gloves holding piggy bank
Generally, when it comes to health, we're invincible until we're not. If you’re in good health chances are you don’t spend a lot of time thinking about the alternative. Unfortunately, ill health can impact hugely on other areas of life including your finances, mental well-being, and relationships with others. If you’re enjoying good health today, make the most of it to sort some things out that could help you or your loved ones through a sudden change in health.

Putting off a will is easy to do but not having one in place can have serious consequences and costs for those left behind. Often it’s not as straight forward as we assume when it comes to what will happen to your estate. For the time poor there are now a number of Kiwi firms that offer the ability to do your will online.

There's no shortage of insurances, or providers including our sister company Kiwi Insure to help you through unplanned health emergencies. A few of the major types worth thinking about include:

  • Life Insurance
    If you die unexpectedly, Life Insurance will provide a lump sum cash payment to your estate. Some policies also pay out beforehand when there is a terminal diagnosis.
  • Income Protection
    If can’t work because of sickness or injury, Income Protection provides a portion of your salary (usually up to 80%) while you recover.
  • Trauma
    If you suffer a major medical event, Trauma insurance provides a lump sum cash payment.
  • Total & Permanent Disablement (TPD)
    If an injury or medical episode leaves you unable to ever work again, TPD provides a lump sum cash payment. 

The common theme with all these insurances is that they can provide cash to help you make ends meet in the short, medium and long term. They can also help fund treatments that might be otherwise unaffordable.


Emergency fund 101

The good news is regardless of what unexpected things might happen in life, the principles of an emergency fund are relatively simple and remain the same. We’ve answered four of the most common questions that arise when thinking about emergency funds.

emergency fund illustration

What’s an emergency fund?

Rainy day fund, safety net, emergency fund… you’ve probably heard of the terms before but what do they mean? Basically, they’re all intended as money you put aside in a fund you can access quickly and easily, to help you fill a financial gap when something major happens that you didn’t expect.

How much do I need in my emergency fund?

Everyone’s budget is different but generally experts like Sorted suggest aiming for at least three months’ living expenses available at short notice. They also suggest self-employed people or those with irregular income may want to put aside even more. An emergency fund should cover things like bills, debt repayments such as mortgages, credit cards and hire purchases as well as everyday spending like grocery bills, childcare and transport.

When should I use an emergency fund?

Getting together an emergency fund takes effort and commitment so you don’t want to access it unnecessarily. Always consider whether the ‘emergency’ carries a big unexpected cost, is something you need as opposed to something you want and whether it’s urgent. Generally speaking if it ticks off all three boxes (unexpected, needed and urgent) – then use it.

How do I set up my emergency fund?

Make a start by deciding how much you’d like to have in your emergency fund. For some, three months’ living expenses is a real stretch, for others even longer might be possible. The most important thing is to make a start – something is always better than nothing at all. Over time you can work towards your goal of three months if it feels too hard now. And remember, an unexpected windfall like a tax refund, gift or lotto win could help.

Next, take three months’ worth of bank statements, classify your expenses, add them up and remove anything non-essential (coffee may or may not be an essential). This should help you get a rough idea of what you need. Remember resources like Sorted’s planning and budget tips are there to make it easy.

Make a start on your emergency fund

Whilst you can’t stop the big challenges in life that seem to come out of nowhere – you can take the financial sting out by preparing for the unexpected. No matter what the scenario, the reality is, having money set aside in an emergency fund is likely to help.

If you’re looking for a way to build an emergency fund and have some time to do it, we think investing with our Managed Funds is a great way to start. Why? Although there might be ups and downs, long-term, managed funds usually generate greater returns than term deposits. See how Kiwi Wealth’s Managed Funds could help prepare you for a rainy day.

Tags: Investing, Managed Funds

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