Personal Finance Series: No 29 – What To Protect, What To Put First, And When

To varying degrees, people understand that it is important to think about protection. When it comes to managing the personal finance family budget, of course the most familiar aspect of protection is insurance.It isn’t, however the only thing people think about when processing the 14 ways the brain thinks about money. Finance protection includes insurance, but it also includes expenditure on childcare, elderly care and other obligations, such as maintenance, alimony, and child payments.Our attitude to finance protection is to protect against life events, shocks and disasters or harm, therefore the money spent on these things is often prioritised as a necessity.Protection: The Most Damaging EventsThere are a vast array of insurance products sold to people on the basis of their perceived risk and concerns, from statutory insurances like car insurance and some government levies, to lifestyle insurances against health, accident, job loss, and death. Life has a tendency to spring surprises, but it can be difficult to know which of these surprises can be most damaging to family finances – is it an unexpected flood, the sudden death of the breadwinner, or the loss of a job through long term illness?The answer, of course, is simple – the most damaging of all these is the one not planned for. The most damaging shock to finances is the one people think will never happen to them – until it does.Protection: Balancing Today v TomorrowWhen considering personal finance budget worksheets, spreadsheets or family budget systems, the best protection is anticipation, so by adding up and balancing spending to income, it is possible to look at a forecast by extrapolating forwards and taking a look at the picture for ‘tomorrow’.Then, depending on the degree of perceived risk, decisions can be made to insure against risk and loss. For example, many don’t insure against the loss of a mobile phone – yet when it is lost, for many the experience is extremely inconvenient.Contrast that though, to fathers who fail to insure their lives and leave their families in significant difficulty when they suffer an accidental or sudden death. Some insurance decisions are lifestyle choices with low impact, others have devastating impact when lifestyle choice is prioritised over insurance.Protection: The best ways to protect what you loveClearly, insurance is the number one protection vehicle, or a savings vehicle with an element of life cover attached. Not everything though, can be insured in this way. Therefore people should really set financial goals, or even set just a small amount aside and create a financial buffer.Considered opinion seems to be to create a 6 month income equivalent, as a buffer, but with careful budgeting, goal setting, and financial forecasting, perhaps. Utilising a personal finance budget software online, for ease of use, reports and tracking the consequences of financial lifestyles is perhaps not the best way to protect what you love, but it can and does provide critical insight into how the brain segments the spending in our minds.