Financial Resilience

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What is financial resilience?

It’s a long-term approach towards your relationship with money. We focus on the ability for your finances to be able to withstand different life events that may impact your income. These are events such as job losses or unexpected illnesses, things like that. 

It’s about asking yourself whether you would be able to cope if you lost your job through prolonged illness or after your sick pay from work stops. We help you take a long term view.

What’s the difference between financial wellbeing and financial resilience?

They do sound similar but there are some subtle differences. Financial wellbeing is more about being in control of your day-to-day finances and your short-term relationship with money, rather than taking a long-term view.

Financial well-being is your ability to afford regular expenses – phone bills, childcare, your mortgage, general spending, and things like that. 

The difference really happens when there’s an unexpected event. If a life event suddenly occurs you may not be able to deal with it financially and it could affect you long-term. This is why financial resilience is so important because it will give you options to deal with unexpected situations. That way you don’t suddenly have to take out high-cost loans or use your credit cards and potentially end up in a worse situation.

How Financially Resilient are you?

Contact us for a free Financial Resilience and Income Stress Test

How do you achieve financial resilience?

The best way is to start reviewing what you actually have at the moment. We would look at existing protection policies like life cover, sickness cover, serious illness cover and things like that. 

By looking at them with an advisor you can understand whether they are still fit for purpose. Are they doing what they’re meant to do? Has your situation changed? Different things happen in your life. You might have got married. You might have got divorced. You might have changed jobs and now your salary is higher or lower than before. It’s also good to ask yourself why you took out the policy. What was the objective when you set it up? 

There are other things that you need to look at too. A lot of people’s existing life insurance policies are not set up in trust – and this is so important because it makes sure that the proceeds of your policies go where you actually want them to go. They don’t get held up and delayed by probate, where it can take a year or more for a policy to pay. 

If it’s in trust, it’s outside your estate and not subject to probate. In that case, you can generally get the proceeds within a week or two. Also, if you put the policy into trust, it avoids the potential pitfalls of inheritance tax, which can be up to 40% depending on your financial situation at the time.

You need to look at everything – it’s not just about protection. Setting up your Will is also part of financial resilience planning. 

Also, if you have children and – God forbid – the worst happens and both parents die in a car accident, you want to know who’s going to be looking after them. You can put guardianship in your will, to name your brother, your sister-in-law or any other individual to look after them. If you haven’t got that covered in your will, they could end up going into care. It’s all about future planning, really, so that’s why it’s so important.

What is low financial resilience?

It’s where you haven’t addressed your potential needs. You might have put your head in the sand and let things drift over time. That might be your mortgage protection cover or life cover.

For instance, you might have bought your first house for £200,000 and got life cover to pay off the mortgage. That’s great – but then, life develops. You might have moved and you now have a £300,000 mortgage, but you’ve only got £200,000 worth of cover because you haven’t reviewed it. That is a situation of low financial resilience – and you really need to address that. If the worst came to the worst and you did die, your widow or widower wouldn’t have enough to actually cover the mortgage. 

Similarly, you might not have any sickness pay cover in place and you’re just relying on your actual work sick pay. Even the best employers will probably payout up to a year’s worth of sick pay. But according to industry standards, an average claim for sickness cover is up to seven years. So you have to ask yourself, if your sick pay suddenly stopped, would you be able to cope with the everyday bills? 

How can Limetree Financial Services help with financial resilience?

The best thing you can do is contact an adviser and have a review regularly. It’s not something where you can have one review and leave it, because life changes. We’ll review your specific situation, look at your needs and give our recommendations. 

You might not be able to afford to do everything all in one go, because there could be several items you need. You might want to cover your life and protect against serious illness. Then in a year or so’s time you might decide that covering your income is really important. 

It’s not like we recommend everything and you have to take it all now. The ball is in your court. We just highlight the actual needs, then hopefully over time you can address them to give you full financial resilience in the future.