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How to Protect Your Finances During Unexpected Life Events

2500 years ago Greek philosopher Heraclitus said we should “expect the unexpected”. Clever eh? But what the heck does it mean?

How can you expect the unexpected?

Actually, insurance companies do it all the time. Their fancy-schmancy mathematicians calculate the probability of something happening and then make bets with their insurance premiums on how often the ‘unexpected’ will happen.

For instance, how likely is that your house might burn down? Probably not that likely. But compared to how likely it is to be hit by an airplane – well the latter is obviously much more unexpected.

Long-story-short, we can’t exactly expect the unexpected, but we can make pretty good guesses about the most likely unforeseen events.

There are a few common events that frequently take humans by surprise. Unfortunately, they all have a significant, adverse effect upon your finances and can leave you struggling to get by.

Here are a few examples:

  1. Debilitating Injuries. We all know that severe health challenges can happen to anyone anytime. When they do, they can deplete our finances rapidly right at a time when we need financial security the most.
  2. Job Loss. Again this can happen to anyone at any time. With over 50% of all Canadians only $200 away from being insolvent – this can be a devastating blow to many people.
  3. Major Household Repairs. House insurance covers only so much. When something does happen that isn’t included – the bills can upend our finances.
  4. Car Expenses. Have you got $2500 sitting ready for a replacement clutch? No, neither do I – so when it happens, we are left scrambling.
  5. Divorce. Well, this is a “biggie” of course, and I left it to the last just to see if you have been paying attention. It has to be included in this shortlist as over 50% of Canadian marriages end in divorce. And it is a massive disruptor to people’s finances.

Anyone or a combination of these ‘unexpected’ events can take a person into an unmanageable debt situation or even bankruptcy.

So how can you protect yourself against these events?

  1. Get out of debt.
  2. Build an emergency fund ideally enough to cover 3-6 mos. expenses.
  3. Have an up to date Will so you don’t (unexpectedly of course) leave your dependents a mess to clean up.
  4. Review your life, health and disability insurance. It pays to know what you are covered for and whether you should extend your coverage – assuming you can afford it.

Carrying a large amount of debt is a major impediment to preparing for unforeseen life events. So getting out of debt should be a high priority in protecting your finances during unexpected life events.

In your quest to be able to ‘expect the unexpected’, if you have significant debt and wish to be better prepared, reach out to a Licenced Insolvency Trustee (LIT). You can discuss with them how best to get on top of your debt. Contact an LIT today for a free, confidential consultation. You’ll be glad you did.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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