Avoid a financial crash and burn

Life Insurance

It is bizarre the number of adults who believe that life insurance is optional.  Those how do have life insurance rarely have enough.  This is because most consumers see their debts as temporary.

The average household has accumulated a personal debt of £8,793.  Most of these loans include 25% interest rates.  This can be devastating for the surviving spouse left with children to raise, bills to pay, funeral expenses and council tax. 

Most households only carry enough life insurance to cover the mortgage.  This leaves the surviving spouse, often a woman, returning to the work force to earn minimum wage, and accumulate more debts in her attempt to keep a roof over her family’s head.

Many households do not take into consideration that a stay-at home spouse has rarely built up a good credit rating, leaving them forced to repay most outstanding loans upon death. 

There are also the wages lost in the bereavement period and living expenses if the surviving spouse needs to find employment.  In fact, considering re-educating the surviving parent may be the only responsible option for larger families.

A major issue concerning death that is often overlooked is the death of the stay-at-home parent.  The major income earner rarely calculates the cost of child care, travel expenses, and tuition for sports and lessons, lost time at work, and house cleaning and laundry services.

Home Insurance

Have you ever thought of what you will do in the event that your house burns down?  Insurance will cover some costs, but they never cover all, even if they promise to. 

Is your insurance policy valid?  Many people believe that it is the insurance company’s responsibility to make sure their home has the right policy.  Yea, like that is going to happen.  Just look at Payment Protection Insurance to evaluate the insurance company’s transparency.

Most insurance companies will not cover older homes. Even if the house is covered, make sure that the company understands the real value of the home.  No one wants a beautiful 18th century home replaced by a pre-fab loft style home.   The trim in most homes can easily add £20,000 to the replacement value of the home.  ‘And is that a hard wood floor under your carpet? Cha-ching.’ 

I can almost guarantee that you have not video taped all your belongings.  Your grandmother’s ring may be invaluable to you as a keepsake, but it is still worth several hundred pounds.  You will not get a penny unless you can prove that you actually owned your grandmother’s ring.

Investments

Diversifying is financially responsible.  So is setting a ’sell now’ rate on your stocks.  If the stock price drops below a certain level, the stock is sold.  What about your savings account?  Are your bank accounts FDIC-insured and does your brokerage carry SIPC insurance to protect you if they go out of business?

It is also important to take a good look at your brokerage firm.  Have an expert analyse their fees and management schedule to see if they are looking out for your best interests. 

Debt Management

It is also a smart idea to take your mortgage, and loan papers to a free debt management charity, and have them spend a few minutes reviewing the terms.  You will be shocked to learn that some ‘great deals’ are actually skinning you alive, so to speak.

Some of the best deals on the market have hidden clauses that cost dearly.  One often overlooked clause can add a couple hundred pounds to the length of the loan to penalize a late payment.

Get What You are Owed
According to a 2006 report, millions of pounds remained unclaimed.  This is often in the form of overpaid taxes, or rebates that the general public never hears about.  Take a look at the overdraft fee scam.  The banks were making a tidy profit from people’s ignorance, until the Office Of Fair Trading dropped the hammer on illegal overdraft fees.  Now, thousands of bank customers are going to court to demand their fees are returned.  The average claim is in excess of £2,000.

The government programs are not for people who are in trouble financially; they are designed to keep people from getting into trouble in the first place.

Keep Learning

The best way to be financially responsible, and save yourself hundreds of pounds a year, is to continually learn.  The government now has a free help line. Two major debt management charities are in business to help you – before you run into trouble.

It can take decades to build wealth, and months to lose it.  Unfortunately, statistics show that thousands of people declare bankruptcy or apply for IVAs who could have avoided losing control of their debts with a little knowledge, and careful planning.