This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Even the best-laid plans can flounder upon unforeseen events. Having a backup financial plan – or a financial “Plan B” – can help provide a crucial safety net if the future does not transpire as we hope. This has become even more apparent since 2020 when COVID-19, the cost of living crisis and other economic challenges have disrupted our lives. Below, our financial planners in Padiham, Burnley share reasons to consider crafting a financial Plan B and possible ideas to discuss with a professional in light of your goals and circumstances.
What is a financial Plan B, and why have one?
We all should hope for the best when it comes to our future, but this does not mean we should not prepare for the worst. Perhaps your career does not progress as you wanted, despite years of training, experience and studying. Maybe you go through a divorce and your family does not take the form you hoped for (e.g. sharing child custody). Not every future event can be mitigated or avoided, so it helps to have contingency plans ready – to protect you and your loved ones.
Reasons to create a financial Plan B include:
- Minimising the impact of unexpected expenses. These might include an unforeseen car repair, home repair or large medical bill.
- Protecting your income if you lose work. You cannot rely on a government to fully protect your livelihood if you lose paid hours, or your job. Jobseeker’s Allowance (JSA), for instance, only grants up to £77.00 per week for workers aged over 25.
- Safeguarding your wealth if the market is volatile. If the stock market suddenly crashed – as it did temporarily in 2020 when the reality of COVID-19 hit investors – how can you minimise the damage to your wealth?
- Accounting for illness, injury or premature death. What if you could suddenly no longer work and provide an income due to an accident? How would your family cope financially if you died prematurely? A financial Plan B can help to protect your household’s stability.
How to craft a financial Plan B
Creating a backup financial plan begins with asking the simple question: “What if?” When your financial plan only accounts for one scenario, you are putting yourself at high risk. Accounting for the unpredictable events of life can help you more confidently navigate its messiness.
Take care to assess how realistic each “what if scenario” is. For instance, suppose in the future you lose your job. Your options might include asking a relative for financial help, moving or even downsizing to a new residence, cutting spending or drawing on savings (set aside for this very scenario). This latter option is the most proactive and responsible one. Moreover, an emergency fund can help you weather other unexpected events too – e.g. paying for an emergency flight home from abroad.
It helps to examine your current financial situation. What assets and liabilities do you have? Do any of them pose risks which require a backup plan? For instance, if you are a company director alongside other directors, then your business is likely an “asset”. Yet what if one of the directors died suddenly and their equity stake passed down to their family, who have little experience or interest in the business? Here, a share protection arrangement could act as a wise “Plan B” (by enabling surviving owners to purchase the deceased owner’s business share from the deceased owner’s estate).
In many ways, a Plan B can be “built into” your main financial plan by giving yourself options. A good example is equity release. Some people view their property as their “retirement fund” – i.e. a major source of income, which justifies not saving into a pension during a career. Yet making this your “Plan A” is usually not a good idea. First of all, what if you cannot sell your home easily or for the price you hope for? Rather, by having equity release as a potential option in a Plan B scenario (e.g. to help pay for care costs), you give yourself more options in later life to navigate various circumstances that may arise.
Financial protection is another important component to consider for your financial Plan B. This may include life insurance, critical illness cover, private medical insurance or income protection depending on your goals and situation. Financial protection is specifically designed to guard against life’s risks and provide a vital lump sum (or replacement income) if disaster strikes. Yet you should take care to build an appropriate protection plan; you may not need all of the above (e.g. if your employer offers private medical cover) and it is important to get the right level of cover at a good price. Here, a financial planner can be helpful to review your protection plan, suggesting suitable products which suit your needs and goals.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
