Author Katrina Shanks, CEO Financial Advice NZ Article originally published in Stuff.co.nz.
The commentary has been frequent and clear: 2023 is going to be a year of challenges as inflation and interest rates continue to rise. Many economists are tipping it to be tougher financially for most people than either of the past two years. So, how are you going to survive it in good shape? In the final of our four-part series, we look at how you can protect what you have and why now is a great time to review your goals and financial position.
Times of high inflation and what feels like runaway costs are a perfect time to run a health check over everything to ensure it’s as secure as it possibly can be. It’s also a great time to check your financial position against what’s happening around the cost of living and to amend your goals if necessary.
Running a health check should include your family, lifestyle, assets, and your future earning ability.
Are your savings earning as much as they can, your investments working as hard as possible for you, your KiwiSaver in the best hands, do you have the right insurance cover in place for when something goes wrong?
Just mention the word and many people’s eyes glaze over, but this is one of the most important things you can do to safeguard your financial future.
Have you recently married, had children, your children left home, or your partner retired? If so, you need to consider if you still need the same level of insurance. These milestones can impact on the level of income cover you have and will impact on the premium levels you pay.
Kiwis are underinsured compared to people in many other developed countries, and it’s generally acknowledged it comes down to habit. But it’s a habit we need to break, because insurance is the safety net around the trampoline that helps us bounce back when things go wrong.
This could be related to health, loss of income, or your car or home. If you don’t have it, your financial future for many years to come, could be in jeopardy.
There’s a lot of information online around every type of insurance, from health insurance, life, and income, to house, contents, car, and pets. There are many options available to suit any lifestyle and budget.
Enduring powers of attorney
An enduring power of attorney (EPA) allows someone, usually one or more family members or even a lawyer, to make decisions on your behalf if, through poor health or other reasons, you cannot do that yourself.
Many people think an EPA isn’t needed till they’re older and perhaps nearing the end of their life. But when you consider statistics around accidents and serious illness, you can see doing it earlier has benefits. Anyone at any age can have an accident or be incapacitated with illness, and that’s when someone needs to make sure you’re being properly cared for, the mortgage is paid, and your dependants – children, parents, or anyone else – are looked after.
There is lots of free information online about this.
An emergency fund
Too many people live from payday to payday and have no reserves if something goes wrong. That could put them into serious debt. This year could be the year an emergency fund comes in very useful, when the pressures of the rising cost of living are mounting.
If you have an emergency fund, then do your very best to not use it for anything other than an emergency, however tempting it could be.
If you don’t have one, then now is a good time to start. Work out what’s the right amount to have as a backup in case you need access to cash quickly. As you would for a regular savings account, putting money away regularly into this special account is the best way and will soon mount up. It doesn’t matter how small your contributions, as long as you do it. Even just $20 a week will add up to $1040 a year before interest, and that’s a good backstop.
Wills and Enduring Power of Attorney: Review your will when you have big life changes, such as marriage, the birth of a child, or a marriage separation. Things don’t always stay the same in our lives and can impact on our plans. Having your legal documents updated will help when your family may need it most.
The Executor of your will or your nominated Power of Attorney may need to be changed over time, so remember to check this and notify any key people of changes with help from your legal expert.
Review your goals
It’s a great idea to review your goals and financial position at least once a year and make any changes to make the most of your planning.
If you need help, reach out to a Financial Adviser and keep moving ahead on your path to increasing your financial health, wealth and wellbeing.
I review my position every year and make changes as my life changes. It’s a great time to reflect on how I went last year and where I want to be in the short term. My long-term goals are pretty static so I only review them every couple of years. Planning can be incredibly empowering.
As my adviser would say, make a plan, and if it needs to change, adapt it and keep going.