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Financially, you need to plan for the worst
Financial planning is about using your money in the most effective way, but what would happen if your income dried up?
by Michelle McGagh on Nov 30, 2012 at 08:13
Plan for the worst and hope for the best could be a motto for us cynical Brits, but when it comes to making sure our families are provided for in the event of our death we prefer to stick out heads in the sand.
Jason Holmes, director of Lumen Financial Planning in Northern Ireland, said the biggest mistake that people make when sorting out a financial plan is that they don’t plan for the worst.
‘People don’t plan for the worst and they don’t buy things like life cover. They need to look at the risks of not being able to work,’ he said.
‘Ask yourself what would happen if the main breadwinner couldn’t work? I have family income benefit – it costs between £20 and £30 a month but it pays out £20,000 a year in protection.
‘This is something that should be done automatically – a little bit of protection goes a long way.’
Making the pieces fit
Protection is only one part of what Holmes described as the ‘financial planning jigsaw’. He said you need to make sure ‘all the pieces fit together’.
Holmes said it was impossible to achieve a financial plan if you look at all aspects of your finances in isolation, you need to look at them as a whole picture.
For example, many people are busy squirrelling away money into ISAs and other savings but still have a huge mortgage that they have to pay off, essentially a large debt that is accruing interest.
Most people think of the savings and mortgage separately but mortgages are just like any other debt that needs to be paid down, said Holmes.
‘The best tip I can give is to make sure that all your finances fit together and financial planners look at the whole picture,’ he said.
‘You need to look at all your assets and liabilities; people are paying into their savings but they have not paid off their mortgage, they need to see how they could use their money more effectively.’
Financial Planning Week runs from 26 November to 2 December and is organised by the Institute of Financial Planning to raise awareness of the profession and help consumers make the most out of their money. You can find out more here.
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