(03) 9020 2905Crossing the road safely is a life skill you can’t handball. Not something you can delegate.
Look right, look left. If Lightning McQueen (a mad driver and not such a great role model for kids) isn’t speeding in your direction, seasoned judgement, or your Jedi powers, guides you across safely.
In a similar basket go eating healthily, staying employed and avoiding tiger snake bites.
Each encounter involves risk. Too many Big Macs might lead to diabetes. If you’re not a snake handler, don’t play with them. Simple. Even a professional like Steve Irwin (RIP) can get it wrong with dangerous animals.
Every day you live with the risk of a home burglary, a car accident, a house fire and, from the personal experience, a dangerously close-to-rupturing appendix.
How many of these risks have you handballed?
The good news is that, for the above, most of you score a pass. Australians generally insure their home, their contents, their cars and, to a slightly lesser extent, their health. There’s no reliable figures, but it would appear few play regularly with deadly snakes.
But the good news stops there.
The biggest risks Australians face, generally, they don’t insure. And they’re financial. Of course.
Australians don’t put away enough for their retirement and rely on the government age pension. If you died, you would largely leave your families virtually homeless and/or destitute.
If you couldn’t work for six months, you’d lose your castle/home. You have no income sources outside of work. (That is, you don’t have any independent investment income.)
To be sure, if something major happened in your household – death, disability or major illness – you would be, frankly, financially stuffed. Or those you leave behind would be.
There are solutions, people. There always are.
Handball it!
Pass the risk to someone else. A look-away pass where you can get back to concentrating on the stuff that matters to you.
I’m not just talking about insurance. Not totally.
Partly, I’m talking about building a buffer in your finances. Saving three months worth of salary that sits in your offset account, or a savings account earning high interest, for renters.
I’m talking about building long-term investments that, if dire situations arise, can be liquidated, such as shares and managed funds.
If you never use it, great. That unused buffer will either pay off your mortgage faster, or earn you something in the way of interest or dividends or distributions that are, essentially, unearned income.
Now you’ve got a fallback, if you ever find yourself sacked or retrenched or otherwise sans income for a period. In the meantime, it’s working for you.
(By the way, savings can be as addictive as the hardest drugs. Once you start seeing the benefits of savings, and the compounding of earnings on those savings, you could find yourself craving more. It’s one of the few addictions that are actually good for you. G’arn. Give it a try.)
But you can’t save your way out of every potential mess you might find yourself in. And you won’t be able to sweet-talk your way out of it either, unless you’re Ferris Bueller.
Do me this simple maths.
How old are you? Subtract that from 65. Multiply that by your annual salary. Here’s an example. You’re 35. Take that from 65 and you have 30. Multiply that by your wage ($100,000) and you have $3,000,000.
That is how much money you will earn between now and retirement.
Do you own any other assets worth $3 million? No? If you’re under 50, even 55, your “ability to work” is likely to be your single biggest asset. By the proverbial screaming mile.
It will pay your mortgage, put the tin lids through school, purchase your investment properties, pay for overseas holidays and support your lifestyle.
What’s your car worth? $30,000?
You could earn that in a year. But you’re probably paying the same in insurance for that car that you could to cover your income (after tax deductions) for the next 10, 20 or 30 years.
One’s worth $30,000. The other potentially two, three or five million dollars.
Get my point?
It doesn’t have to cost an arm and a leg. Speak to a financial adviser. But by not “handballing” the risk, you’re taking it on yourself. And let me tell you, you don’t have deep enough pockets.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser and mortgage broker. bruce@debtman.com.au.