Video: Scott Pape's protect your finances money challenge

video about protecting your finances

Video transcript

Welcome to the Barefoot Investor's 60, 60, 6 challenges - Helping you get more money smart by the minute.

What would you do if disaster struck you or your family?

Now, everyone thinks it's not going to happen to them but I'm here to tell you, it can happen to you. When my wife and I bought our dream home we never imagined that 18 months later, we would be standing in front of a smouldering pile of ash and rubble. And all our worldly possessions were lost within it.

No one plans to lose their home in a bushfire, just like no one plans to be diagnosed with a terminal illness.

60 seconds challenge

So this challenge is simple but hard. I want you to picture yourself off work due to a major illness or injury. Now picture your family. What are they feeling?  Would they be prepared or would their financial stress just add to their pain?

60 minute challenge

See, when disaster strikes the last thing you want to worry about is how you're going to finance your misfortune. A Legacy Box is somewhere safe to put every financial document your family will need in case you're ill, or if the very worst happens. It'll help make a very difficult time that little bit easier to manage.

Here's what I suggest you put in it: A summary of your financial situation, including things like any shares you own, loans, and your budget.

Your bank account and super details, insurance policies, birth and marriage certificates, the title deeds to your home and your Will, along with any funeral instructions or final wishes.

Now, keep your legacy box in a fire resistant, waterproof safe at home. And I'd even go one step further, and also keep a full copy of these in a safe deposit box at your bank. You just never know when you might need them.

6 day challenge

It's important to make sure you have enough insurance on your most valuable asset: your ability to earn an income. That's why you may need income protection insurance, total permanent disability insurance or TPD and life insurance.

Now the good news is that in most cases you might be able to get these types of insurance through your super. So, call your super fund and ask the following questions:

  1. Number one, 'what insurance do I have'?
  2. Number two, 'what amount am I covered for'?
  3. And, Number three, 'under what circumstances would I receive a payout'?

Now, you may find that you already have some insurance, but is it enough? So grab a piece of paper and draw a line down the middle. On one side write down what you own, and on the other what you owe.

Now, you need enough cover to pay off all your debts and if you have kids, provide another income until they're off your hands. Insurance calculators can also help you work out how much you might need.

Now, the advantage of buying insurance through your super fund is that you're paying with pre-tax dollars, and it might also be cheaper than going direct to an insurance provider. Just make sure you compare costs with at least two other insurers or super funds.

Also, be sure to ask what's excluded and what's included in your policy.

Finally, the cornerstone of my wealth building strategy is to build up at least three months living expenses in a high-interest online savings account that I call 'Mojo Money'. Remember, if you've got Mojo, you're ready to deal with life's ups and downs. Because I've found that people who have an emergency fund don't actually have financial emergencies!

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Last updated: 15 Aug 2016