Thanks to poor financial planning, over ten million Brits are taking huge risks with their financial security. How close are you to the edge?
More than ten million British workers rely completely on their monthly pay to make ends meet, which means that they are just thirty days away from financial meltdown.
According to new research from the Prudential, 2.9 million workers -- a tenth (10%) of the UK workforce -- are worried that they could lose their job imminently. Furthermore, with unemployment at a four-year high of 1.6 million, almost a quarter of employees (23%) admit to worrying occasionally about being out of work.
In addition, almost a fifth of the UK's workforce (18%) was signed off sick last year with a long-term illness or health problem, adding to uncertainty among British workers. Of course, while some companies are generous with sick pay and other benefits, others provide the bare minimum in the form of Statutory Sick Pay, which amounts to a mere £70.05 a week.
Even worse, a large proportion of workers have entirely failed to plan ahead to cope with financial emergencies such as job loss or severe illness. The Pru's research reveals that more than a third of us (36%) have little or no savings to tide us over when we need help with meeting our living expenses. Therefore, around 10.4 million workers are living from one month's wage to the next, with no cash cushion to fall back on. Yikes!
The Pru's study has also discovered that just 27% of workers believe that they have sufficient savings to tide them through periods of unemployment or illness. A tenth have insurance to cover jobless periods, and a further quarter believes that they could rely on financial support from family and friends to tide them over during absences from work.
Sadly, without any savings and/or insurance policies to act as safety nets, many workers are in a highly vulnerable position if anything untoward happens to them. An illness, accident or period of unemployment could send their finances spiralling out of control, plunging them into debt and causing interest bills and financial fines to soar. In some cases, homeowners will default on their mortgage repayments, putting them at risk of losing their home.
If you want to secure your future, you can't depend on the government, your employer, or your family and friends to bail you out when times are tough. The only person that you should rely on is yourself -- so you need a plan, some rainy-day savings, and some protection against life's little misfortunes.
My advice would be to build up a savings pot equal to at least three months' living expenses, with six to twelve months' outgoings being a safer option. If you need help with getting into the savings habit, then read these ten tips.
Furthermore, you can protect yourself against severe illness or health problems by buying income protection, which is a form of long-term sick pay. If your employer provides you with sickness pay lasting, say, six months, then you can increase the waiting period for income-protection benefits to match this period, which will greatly reduce your monthly premiums. However, before you buy income protection, read my ten tips on choosing the right cover to suit your individual needs.
Lastly, you may decide to buy mortgage payment protection insurance (MPPI) to meet your monthly mortgage repayments if you fall ill, have an accident or lose your job. However, it's a huge mistake to buy this protection from your mortgage lender, because it will massively overcharge you, as I warned in The Billion-Pound Mortgage Swindle. Instead, get a quote for a stand-alone policy from a Best Buy provider such as Best Insurance, British Insurance, Burgesses, Helpupay, Paymentcare, Mortgageprotect and the Post Office.
More: Use the Fool to find great savings accounts and better protection!