Why resilience is the first step to financial success

The most important part of any plan is expecting the unexpected. Uncertainty, randomness, and sheer luck, good or bad, are just facts of life. That’s why plans must always have room for error in case they go awry.

As boxer Mike Tyson put it, “Everyone has a plan until they get punched in the mouth”. Building in contingencies and flexibility, whether it’s a safety net provided by certain insurance policies or cash reserve that can be drawn on, will result in greater resilience to a wide range of potential problems.

To thrive you must survive. While risk-taking and hard work tend to be rewarding, it also pays to be risk averse to anything that can lead to catastrophic loss:

• Entrepreneurs and business owners should prepare for the unexpected with appropriate insurances.
• Families should protect against the possibility of death or illness of the main income provider(s).
• Everyone should save for things they don’t yet need. A rainy day. That way it’s possible to cover something going wrong such as an urgent household or car repair.

Protecting a business

Keeping a cash reserve in your business can help with the inevitable bumps in the road you will face. However, that’s not always possible and it may be a case of keeping borrowings and interest rates as low as possible. In addition, having the right insurance policies in place is crucial to safeguarding the company’s future.

Two of the most important insurances are Employers’ Liability Insurance and Public Liability Insurance. The first is a legal requirement that covers costs if an employee claims illness or injury due to work; the second protects against claims from the public for injury or property damage. Many clients and suppliers will require this as a condition of working with you.

There will also be more tailored insurances appropriate to the type and scale of business you run. Professional Indemnity Insurance is essential for businesses providing professional services or advice such as consultants, accountants, or architects as it covers legal expenses if a client alleges negligence, errors, or omissions in your work. If you need to cover physical assets and equipment then Contents or Portable Equipment Insurances can cover these against theft, fire, or damage. Business Interruption insurance provides cover for situations where your company can’t trade. And there is Keyman Insurance which provides a cash lump sum if someone crucial to your company’s ongoing success passes away.

Protecting you and your loved ones

Nobody knows what is around the corner, and there are additional building blocks to your financial security if you have started a family. Taking out the right financial protection helps to ensure your family’s finances are taken care of should the worst happen.

If you are employed, you may have some of these often-essential policies, such as life insurance and critical illness cover, provided for you as part of a benefits package. However, you should check the details of each policy and the level of cover provided to make sure they provide enough support for your circumstances.

If you don’t have them through work these insurance policies might seem like a monthly expense you could do without. But provided you are healthy they can often be very cost effective and give you peace of mind. With appropriate protection in place, you’re in a stronger position to focus on other things.

The policies that are right for you depend on your circumstances, including whether you have a mortgage or if you rent, and whether you have a partner or children. A financial adviser can recommend the ones that suit your needs. The common considerations are life insurance, family income benefit, critical illness cover, and income protection.

Life insurance pays a lump sum if you pass away and can be a fixed sum to provide a cash buffer, or one where the payout decreases over time to pay off the balance on a mortgage. Family income benefit also pays out on death, but pays a regular income until the end of the policy. This could help a surviving partner pay for household bills, school fees and any other regular costs.

Critical illness cover provides a lump sum if you’re diagnosed with one of the critical illnesses covered by the policy. If you don’t think your savings would cover you if you became seriously ill then it could be worth considering, for example to clear a mortgage or make changes to living arrangements. Meanwhile, income protection pays out a regular income for a fixed period if you’re unable to work because of an accident or illness. If you’re self-employed or your employer only provides statutory sick pay, income protection could be valuable.

Building an emergency fund

You don’t want to have to sell investments or, even worse, borrow money in the event of an emergency such as an urgent car or home repair. That’s when having an emergency fund to cover life’s unexpected twists and turns really counts.

How much to keep as an emergency fund is going to depend on circumstances such as how secure your employment or self-employment is, your ongoing expenses, and the various things that could realistically happen unexpectedly. As a rule of thumb, you also should keep enough to pay your essential expenses for three to six months in case of unemployment or ill health. You should be able to cover costs like energy, mortgage or rent, travel and food costs. That way should the unexpected happen, you’ll be ready.

With an emergency fund you’ll need to make sure the money is easy to access. You can earn a decent interest on this balance in a savings account by shopping around, but don’t be tempted by a fixed-term interest rate or accounts with long notice periods. Money locked away for a year is useless when you need cash quickly.

Check the latest rates available through Charles Stanley Direct’s Cash Savings