So, have you ever asked yourself the question – how would you pay your mortgage and support your family if you got injured or sick and were unable to work?
We know this isn’t a pleasant topic to discuss, but securing your family’s future to cover your living expenses should anything happen to you is a MUST. There’s a lot you can do to protect your family and assets. But this process typically involves assessing your current financial situation, setting up a proper asset protection plan, and safeguarding your family from creditors and debtors.
At the end of this guide, you will know how to protect your assets and family.
Let’s get started.
Assess Your Current Financial Situation
Before you put an asset protection plan into place, you’ve to assess your current financial situation. Typically, this involved two steps:
1. Check Your Finances
The first step would be to take stock of your current financial situation. This means looking at your current debts, savings, income, real estate investments, and other investments. While this may seem simple enough, it’s an ordeal for around one-third of the Aussies who are not financially well-versed.
Whether or not you understand finances, you need to know where you stand. Taking this step will bring you closer to securing your future from any financial burden.
Here’s what you must do:
- List all your properties, investments, bank accounts, and valuable possessions.
- Get a clear picture of your income, including salaries, rent, investments, or other sources.
- Define your liabilities, such as credit cards, mortgages, loans, and personal debts.
Use these details to define your current net worth, which will largely define your financial goals and asset protection plan. Knowing what you can afford helps you set realistic goals and stay on track for a better future.
2. Set Your Financial Goals
Everyone has different financial goals for the future based on their present commitments. For instance, parents are more concerned about investing in their children’s education. But for a young couple, saving up for their first house or a new car would be a top priority.
Whatever your situation may be, we recommend setting up three types of goals:
- Short-term goals are about repaying your credit card debts, car loans, and student loans.
- Medium-term goals include strategies like life insurance, income protection, trauma cover, or total and permanent disability cover.
- Long-term goals focus on securing the future of your family, which involves buying your dream house, saving up for your children’s education, and securing income for retirement.
Create Your Asset Protection Plan
Once you know where you stand, you’ll have to come up with a realistic asset protection plan. There are different ways to protect your assets, from your business to your personal property, like your house and car.
But you’ve to follow a few cardinal rules:
1. Diversify Your Assets
Never keep all your eggs in one basket. That’s the first rule of asset protection. Spreading your investments not only reduces risk but also increases your chances of getting higher returns.
Like most Aussies, you can invest in:
- Superannuation
- Property
- Company Structures
- Shares (Equities)
- Managed Funds and Exchange-Traded Funds (ETFs)
- Bonds
2. Plan Your Estate Strategically
Estate planning is at the heart of your asset protection plan. With a well-defined estate plan, you can distribute all your assets as you wish and protect them from creditors and debtors.
You can use different strategies like:
- Create a Will and nominate your heirs to avoid family disputes.
- Build a trust and transfer all your assets in its name to protect your legacy.
While most Aussies create Wills, creating a Trust is a better way to protect your assets. A Trust takes effect immediately and helps you manage your assets while you are alive. It can help you handle accidents, disabilities and complex finances without stress, which makes it as important as getting income protection or life insurance.
3. Manage Your Debt
The sooner you can pay off your debts, the easier it is to protect your assets and your family’s future. But the reality is quite grim, with ASIC saying 5 million Aussies struggle to pay off their debts.
If you are struggling to pay your debts, you should consult a financial advisor as soon as possible. You might also want to approach your debt management more aggressively.
You should:
- Repay your high-interest debts first, such as credit cards, to save money in the long run.
- Combine all your debts into a single loan with a lower interest rate to make repayments easily and quickly.
- Track your income and expenses using an app like Goodbudget or Frollo. This simple step will help you cut unwanted expenses and pay your debts faster.
Protect Your Family from Creditors and Debtors
While savings and pension can help, relying on this alone is not enough to protect your family’s future. You will need to keep your investments safe from your creditors and debtors.
Here are a few things you can consider:
1. Low-Risk Spousal Ownership
Low-risk spousal ownership is one of the most popular asset protection strategies. It involves transferring the ownership of your assets to your spouse. This strategy protects your assets from business risks and creditors if you fall into debt or get sued. It’s an excellent strategy for business owners, who are often at a higher risk of market fluctuations.
2. Invest in Different Insurance Covers
When you think of insurance, medical cover and life insurance are probably the two things that come to your mind. However, there are different types of insurance covers, meant to protect different financial aspects of your life.
These insurance policies include:
- Life Insurance – a lump sum payment in the event of your death that will cover outstanding debt and the future costs of your family to live including education, childcare expenses, estate planning and business buyouts. There are a range of policies available to suit your needs.
- Income Protection – covers 75% of your income should you be unable to work due to sickness or injury. This tailor-made product has different waiting periods and the premiums are generally tax deductible.
- Total and Permanent Disability Cover – provides a lump sum benefit of up to $5 million in the event you become total and permanently disabled resulting from sickness or injury.
- Trauma Cover – provides a lump sum benefit of up to $2 million if you are diagnosed with a specified medical condition (40 plus medical conditions are listed) and survive for 14 days after diagnosis.
Whether you want income protection or trauma cover, My Money House has a Personal Insurance Specialist on-site to help you to understand different insurance policies and how they are relevant to you.
Protect Your Family’s Future
As you can see, asset protection is a long game. But taking proactive steps now will help your family live without any financial burden in future. Starting today, you should consider diversifying your assets, planning your estate, paying off your debt, leveraging low-risk spousal ownership, and investing in different life covers.
That said, you don’t have to do this alone. MMH Group is here to help you. Our experts can help you choose the right policy covers to protect your family and assets. If you would like a quote for any of these policies, fill out the linked form.
