Money is tricky. Debt is distressing. Saving is hard.
And so the easiest thing to do is not think about those things. Sort them out another day. Leave them to your responsible future self.
Unfortunately that future self has all the same flaws as your current self. Damn it!
So there is only one thing to do. Start Now.
“But where do I start? What can I do that will make a difference?”
Well, I like to take life advice from everybody’s favourite nun-turned-governess, Fraulein Maria. She says, “Let’s start at the very beginning”. And I think we can all agree that is a very good place to start.
Financial triage. You know that mean nurse at the hospital emergency room, who decides you wait four hours and that dude goes straight in? That’s the job of the triage nurse: to work out who is most likely die, and who is just there because their arm hurts.
You can do this with your money too. There is no perfect order, and you can do some of them at the same time, but a useful road map will look something like:
- Have an emergency savings stash
- Insure your most valuable asset
- Sort your super
- Pay off ‘bad’ debt
- Pay off ‘good’ debt
- Save for fun stuff
We will look at each one in separate articles, because there is a fair bit to cover. But here are the first two. And I promise if you spend five minutes reading about insurance, we shall never speak of it again.
(Well, not promise, as such…)
Emergency savings – This is money you can call on if you lose your job, have an accident, your fridge dies or you suffer any number ofthe disasters that befall us in this crazy little thing called life.
The right amount is different for everyone. If you have a direct line to the parental back-up system, you can get away with less. If you are really doing this adult life thing on your own, then you need at least a month’s salary – preferably three.
You can put it in a plain old bank account (ideally a different bank to your everyday banking, so you don’t see it all the time and mentally spend it on fun things).
Or if you have a mortgage, put it in an offset or redraw facility, so it reduces the interest you pay.
How do you save this amount? Basically, you spend less. Amazing, I know. Check out this post for some tips.
Insure your best asset – No, not like J.Lo insuring her butt. This is about insuring yourself and your earning capacity.
Boring, I know. But like cleansing and moisturising on a daily basis, insurance is a dull but necessary part of life. So what do you need?
Life insurance – it’s up for debate, but my view is that this is mainly needed if other people depend on you and your income. i.e. if you have kids, or you have a mortgage with a partner. If you’re single or your partner looks after himself/herself, having life insurance is kind of like being on the pill when you aren’t getting any action – a bit of a waste.
HOT TIP: You most likely have some life insurance already, because it comes as a default in super funds. Yes, you are probably paying for it RIGHT NOW. And if the only one who needs your money once you’re dead is the drycleaner, who has half your wardrobe waiting to pick up, you may consider opting out (which you totally can).
TPD – This is for total and permanent disability. Like serious Million Dollar Baby stuff. You get a payout if you are very seriously buggered up and unable to work ever again. That doesn’t mean ‘I fucking hate my boss and also I hurt my back’. It means you are very, very disabled. Usually physically – it’s often hard to prove permanent mental disability.
Again, this is usually a default option in superannuation, and I would argue it’s better to keep it. If you were, God forbid, in a position to need it, you would be really glad to have it. You may even want more than the default amount.
Trauma – similar to the above, but a lower bar to qualify for it. Say you’re in a really bad car accident and can’t work for months, this will help tide you over and pay for all the crazy costs. It’s generally not included in your default super, so talk to a financial adviser, insurance broker or insurance provider about whether it’s for you.
Salary Protection – This is the underloved but very useful member of the insurance family. Say you’re diagnosed with aggressive breast cancer at age 30 (as happened to a friend of mine. No, not Kylie Minogue, an actual real life friend). You have to take six months off work. How do you live? You can’t rely on social security – that shit is hard and slow to access – you will legitimately be living on the streets if and when you ever get a dollar from the Government.
So, unless you relish the thought of cancelling Netflix, drinking Nescafe and taking goon to dinner parties (uni life!) take a good look at this option. You can often get it through a super fund, where it comes out of your super payments, but you normally have to ask for it. If you get it outside of super, the premiums are even tax deductible. I once had it covered by a generous employer.
You can get a cheaper version, where you get paid out for two years, or the fancy one where it goes until you’re 65. You can also choose how long it takes to kick in (1 – 3 months usually) and that affects the cost.
But the key point here is: think about getting it.
Health Insurance – Look, the public health system isn’t going to let you die just because you don’t have insurance. But you might have to share a room with a loud, weird or stinky person if you’re in hospital. You might have to wait a couple of years for knee surgery, with really painful knees, instead of having it on-demand. You might not be able to afford IVF if you ever need it.
It’s a lifestyle choice. I personally hate paying it, but do it anyway, because I can afford it and, as my ex-husband once said ‘I’m obsessed with insurance’. (Ha! As if! I don’t even know anything about it!).
But don’t be afraid to shop around for a better deal. I used comparethemarket.com.au to do that, because I like the meerkat. But you could try iSelect or other comparison sites. (HOT TIP: these are free to use, because the winning insurer pays the site a commission).
What’s all this stuff about superannuation? Well by some quirk of history, your retirement savings have become wrapped up with insurance. You generally get allocated default Life & TPD insurance when you join, and pay from your contributions. Salary protection and trauma can be paid the same way but you normally have to request them.
Now, you are under no obligation to use your super fund’s insurance (although it can be handy). You can buy any of these products directly from an insurance company. I’m not here to tell you one is better than the other – just make sure you have looked at what you have.
The bottom line
The action points around this are:
- Check your superannuation statement, (or call your fund, because I know you can’t find it). Find out what insurance you have, and how much you’re paying for it.
- Work out how much you need and where the gaps are. MoneySmart has some good stuff on this. Financial advisers and insurance brokers are also helpful. Australians are generally underinsured, but you may be overinsured too, if you don’t want life insurance, for example. Or, if you have multiple super funds, you could be paying for several life insurance products. Sort that shit out now. Please.
- Shop around for a better deal on existing insurance by using a comparison site. But if you do this, make sure you read the fine print, to make sure you’re not giving up something you need. Yes, reading the fine print is an important adult skill!
So, there you go, insurance is “Simples!”
Disclaimer: I’m not a financial adviser and this isn’t finance advice. If you think you need professional advice, speak to your super fund or an adviser.