Dollars From Sense

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Absorbing Financial Shocks

Money is one of the leading causes of stress. If you have it, you want to keep it safe. If you don’t have it, you stress over not having it. Money stress comes before family, health and work worries for the most part, and even then, most of those issues have money at their roots. The way you stress about money can have a lasting and negative effect on your life and when you end up in a position of financial shock, you can find that financial stress even harder to cope with.

Financial shock covers anything that can hit your finances in an unexpected way. This can include being laid off work due to workplace injury, recession causing you to lose your job and even health issues that write you off from earning an income. You can, of course, hire in the services of and other such establishments to get you compensation and help if you have been treated unfairly in any of those circumstances, but you should ideally have savings as a cushion for your finances at your disposal. There are three types of savings that you should always have available, and we’ve listed these for you here:

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Emergency Pot. It’s difficult to plan emergency savings, as truly you wouldn’t know what you would need when it comes to absorbing a financial shock. Ideally, you should always endeavour to have at least three months of outgoings as your savings. If you are in a vulnerable position in life, then you should aim for six months at any given time. It may not be easy to get the savings you need, but it’s what you need to survive in a crisis.

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Retirement Pot. You are relying on your entire adult life to feed into your retirement fund, and if you are at the receiving end of poor health that puts you out of work, you need to ensure you’ve already at least started this pot. Every working adult should be avoiding ‘playing catch up’ later on, and committing to putting money away in a retirement fund. A lot of financial advisors will suggest 10% a month of your earnings heading this way – take heed, you may need it later on.

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Personal Pot. Outside of emergency savings and retirement savings, you should have a personal savings plan that goes toward something you want. This could be a deposit for a house, home improvements, a dream holiday, or even a car if that’s what you want! However, before you go ahead and start putting away money for that soft-top sports car, always ensure you have your outgoings, retirement and emergency money covered. There’s no point saving for the luxuries if you can’t save for the general things you need!

Your ability to absorb financial shock is going to dictate how you manage your money. If you have managed your savings efficiently, your mental health likely won’t suffer so much in times of financial hardship. Start today and you could save your own skin when the time comes!