Why you don’t need to experience a financial shock to benefit from a safety net

You might think of a financial safety net as something only useful when you face a shock, like an unexpected bill or being unable to earn an income. However, when you look at the wellbeing benefits, you might be surprised by how valuable it is even when your plans are on track.

A financial safety net is a set of measures you can put in place to protect your finances and lifestyle from unexpected events. This might include creating an emergency savings account you can dip into or taking out appropriate financial protection.

Your financial safety net can be useful when unexpected events happen

No matter how well you plan, life’s uncertainties can sometimes mean you face unexpected events that might affect your finances in the short and long term.

During these times, having a safety net you can fall back on can be immensely useful. For instance, you might:

• Use the savings you’ve put to one side for an emergency to cover an urgent roof repair on your property
• Make a claim for income protection if you’re unable to work due to an accident and have appropriate protection in place, which would pay you a regular income until you’re able to return to work, retire, or the term runs out.

Having a safety net means you don’t need to use assets that have been earmarked for other goals and could keep both your day-to-day finances and long-term aspirations on track.

While your safety net is valuable in a time of need, it could offer wellbeing benefits at other times as well.

The wellbeing benefits of a financial safety net could start now

Money worries and concerns about how you’d cope if something out of your control affected your lifestyle can be draining. Taking action to address these fears could improve your wellbeing right away, even if you don’t need to use the safety net you’ve created.

Just knowing that you have a financial buffer in place could be useful. You might feel a greater sense of control over your life, experience peace of mind, and be able to focus on enjoying your life now.

For example, you might have enough saved that you can reach some lifestyle goals, like going on holiday or gifting money to your child. Yet, you’re holding back because you’re focused on what might happen. If you knew your day-to-day expenses would be covered should you face a financial shock, you may have the confidence to move these goals forward.

So, while you can’t prevent the unexpected from happening, being prepared for it could take the weight off your shoulders.

You might also find you’re in a better position to plan for your long-term aspirations.

When you feel financially secure, you may have more mental capacity to think about how you can achieve goals because you’re not worrying about what’s around the corner. So, your decision-making skills might improve, which in turn could boost your long-term finances.

For example, if you’re working towards an early retirement, knowing you have a financial safety net in place may mean you feel comfortable putting more money into your pension, even though you can’t usually access the money held in it until you’re 55 (rising to 57 in 2028).

Feeling financially secure is important to your wellbeing, so taking steps to ensure you’re protected should the unexpected happen could improve your overall health and outlook, even if you don’t experience a financial shock.

Get in touch to talk about improving your financial resilience

Creating a financial safety net could improve how financially resilient you are and offer greater peace of mind. If you’d like to talk about some of the steps you might take to create a reliable safety net, please get in touch.

Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time, and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.