Appropriate measures, adverse events and positive outcomes

The establishment of an appropriate measure to mitigate a negative outcome that arises from an adverse event, whether expected or not, is an important consideration.

However, the importance and benefit of doing so is often not truly realised until an adverse event occurs.

When an adverse event occurs, the outcome for those with an appropriately established measure and those without can be vastly different. One may stave off a negative outcome while the other may not.

 

This is not meant to be insensitive to those of us currently experiencing a negative outcome. Even the best-laid plans can sometimes be inadequate in circumstances that couldn’t have been reasonably foreseen.

It’s more a comment on the decisions that we make in life in terms of the present (and the tangible) and the future (and the intangible). For example, some of us prioritise the present, with little to no thought towards the future. This is not just limited to insurance and retirement planning.

Although not exhaustive, below is a list of appropriate measures to assist you with assessing how you are placed in terms of your existing personal circumstances if an adverse event was to occur now or into the future.

Importantly, these appropriate measures span across various areas of personal finance, and can in many instances apply to both wealth accumulators and retirees.

 

Cashflow management

Budget and spending tracker

An appropriately established budget, to manage your money (inflows and outflows). Namely, an appropriate allocation of your money towards needs, wants and savings  – and monitored/reinforced by regular tracking.

Emergency buffer

An appropriately established emergency buffer, equal to at least 3 months living expenses, and housed within a high interest savings account or mortgage offset account, to weather a financial emergency, such as:

  • An unexpected large expense. For example, medical/dental emergencies or home/car repairs.
  • A sudden loss of income requiring you to cover 3 months’ living expenses. For example, losing your job (being fired or made redundant) or losing your investment property tenant.

 

Debt management

Borrowing limit

An appropriately established borrowing limit, especially regarding taking out and paying off a home loan, to give you breathing space in a financially adverse event. Namely, being approved for X amount, doesn’t necessarily mean you have to, or should, borrow X amount.

 

Estate planning

Advanced care directive and enduring guardianship

An appropriately established advanced care directive, to give direction to someone, or a number of people, to follow your preferences for medical treatment in the event you become unable to express them due to:

  • A loss of decision-making capacity, for example, sickness, accident or advanced age.

Depending on your state/territory, this may be included in an appropriately established enduring guardianship.

Power of attorney and enduring guardianship

An appropriately established power of attorney, to provide authority for someone, or a number of people, to act on your behalf in the event you need help managing your affairs due to, for example, an absence, while you are on holidays.

It may be general in nature or limited, for example to the management of a certain asset and/or to a certain period of time. An enduring power of attorney continues to stay in effect when you suffer a loss of decision-making capacity, for example, due to a sickness or an accident, or advanced age.

Depending on your state/territory, you also may need an appropriately established enduring guardianship in addition to a general power of attorney.

Will and testamentary trust

An appropriately established will, to advise your executor, and all involved, of your wishes regarding your estate assets in the event you pass away. This may also include provisions for a testamentary trust.

 

Insurance planning

Personal insurance

An appropriately established personal insurance, to protect you (and loved ones) in a financially adverse event, such as:

  • An unexpected passing;
  • A traumatic event; or
  • A disabling sickness or injury.

This can also extend to appropriately established general insurance, inclusive of private health insurance.

 

Investments

Diversification

An appropriately established level of diversification within your investment portfolio, inside and outside of super, to help mitigate the risks inherent in ‘putting all your eggs in one basket’.

Investment risk profile

An appropriately established investment risk profile, inside and outside of super, to properly reflect your personal circumstances:

  • Financial situation, goals and objectives;
  • Desire to align our investment values with our personal values;
  • Expected investment performance, time horizon, and tolerance/capacity for risk; and
  • Understanding of investment fundamentals (risk/return, asset classes, and diversification).

Liquidity and accessibility

An appropriately established level of liquidity and accessibility within your wealth accumulation strategy, to facilitate the timely receipt of funds in the event they need to be called upon.

 

Superannuation

Death benefit nomination

An appropriately established death benefit nomination (non-binding or binding), to advise the trustee of your super of your wishes regarding your death benefit in the event you pass away.

Depending on your personal circumstances, consideration may also extend towards an appropriately established reversionary nomination, which is available on income streams, such as an account-based pension.

Super contributions

An appropriately established voluntary super contributions strategy, to help mitigate the potential financial implications of you solely relying on the first two pillars of Australia’s three-pillar retirement income system:

  • The first pillar, namely, the Age Pension (publicly-funded); and
  • The second pillar, namely, super guarantee (compulsory private savings).

Retirement income

An appropriately established retirement income strategy, to help protect you from the potential risks that you may face in retirement, such as sequencing risk, expenditure risk, and longevity risk.

 

Moving forward

As previously stated, the importance and benefit of establishing an appropriate measure to mitigate a negative outcome is often not truly realised until an adverse event occurs.

However, even the best-laid plans can sometimes be inadequate in circumstances that couldn’t have been reasonably foreseen. This can mean lessened, but still a negative outcome for those with a measure in place.

Importantly, in instances where this does arise, please remember you are not alone in navigating your way, help and support is available, from us and others. Please watch our animation for further information.

And, in terms of others, this is clearly seen through, for example Government policy, especially in recent times for individuals and households, as well as businesses.

If you have any questions regarding this article, please do not hesitate to contact us.