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“What was that?” I hear you ask. That was the sound of a severe cash crunch. Perhaps you’ve heard that sound before yourself.
Don’t panic. It was definitely mine, not yours. But it was no gentle “snap, crackle, pop” like DebtGirl’s cereal.
It was rudely loud. It woke my neighbours. Again. (I have been trying to mend those fences since my 40th bash.) And it scared the poop out of me. I’ve never experienced anything like it.
And, hey, I’m the guy with backup plans. At the heart of every back-up plan must be a stash of cash for when you’ve peeved Murphy. (Murphy’s Law: “Anything that can go wrong, will go wrong.”)
A costly stay in hospital, a tsunami of unavoidable expenses, my trusty laptop clapping out, weeks of costly business email/internet failures, supplier stuff-ups, bills for professional help to deal with supplier stuff-ups, and replacing “faulty” equipment that, of course, had absolutely nothing wrong with it and was actually related to the supplier stuff-ups.
And, right at the point of maximum pain … I cop a margin call. Clearly, even the stock market gods couldn’t resist kicking someone when they were down.
I thought I had plenty of coin hidden down the back of the proverbial sofa – enough to cover 40 rainy days and 40 rainy nights. But I nearly had to call Noah out of retirement.
Sure, it’s been a bad run, but I’m not asking for pity. (The preference, obviously, would be money. You can send that to …)
As Mike Moore, anchor of Aunty’s 90s current affairs spoof “Frontline”, would say, “Mmmm, there’s a lesson in that for all of us”.
So here’s what I learned. My immediate cash reserves were deep enough for whatever bad karma that was. Just.
So, how tightly primed are YOUR household finances? Could you withstand a financial flood of biblical proportions?
The statistics say no. Even if my reasons are unique to me, I’m not alone.
A recent Melbourne Institute Household Saving and Investment Report says that household saving has fallen off a cliff.
For the year to June, the deterioration in household savings was disastrous – the worst in the survey’s 10-year history. Those “saving” fell by nearly a quarter, to just 25.2 per cent of households.
More than ever before listed “saving for a rainy day” as the reason. People are worried. The report said this was either a fundamental change towards paying down debt, or fears about a slowing economy.
Something’s going on, even if the economy is currently in “good shape”. Unemployment is below 5 per cent. If the moaning from retailers is right, then we’re not spending to try to dress like Lady Gaga.
A month ago, the Reserve Bank was tipped to increase rates. Now, the “experts” believe the next move could be down. Like Milhouse’s chances of scoring a date from Lisa Simpson, don’t get your hopes up.
So, how are you travelling? How’s your buffer? Could you withstand an elongated challenge to finances, or income, in your household?
What if you or your partner lost your job and couldn’t find another one for a couple of months? What if someone in the family got very sick? What if interest rates started to spike?
How much cash could you get your hands on in an emergency? You need about three months’ worth. And it needs to be liquid.
Cash: Everyone has a bank account. The best spots are offset and redraw accounts. After that, online savings accounts. Something with immediate or overnight access.
Liquid assets: Not property, which usually takes a minimum of two months to liquidate. Liquid assets are shares, or managed funds, which can be converted to cash in a few days or weeks.
Spare borrowing capacity: Don’t have your loans, credit cards, lines-of-credit permanently maxed out. Have some room there so that, in an emergency, you can draw on it, even if it means paying interest for a period.
Insurance: Particularly income protection insurance. If you’re off work for accident or illness for a longer period, then sick leave and holidays will eventually run out. Income protection insurance is designed to provide the ongoing income stream that may well be the thing that allows you to keep your house during long recoveries.
And don’t mess with karma.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .