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How would you cope financially if you lost your job tomorrow?

It’s not a scenario most of us want to consider but according to a new report, the average UK family could only sustain their lifestyle for less than two months if they were to suddenly lose their main income.

Struggle to cope after 46 days

As reported by The Mirror, a Post Office investigation found that a typical family on an average monthly income of £3,156 with access to £10,741 in cashable savings, would struggle to cope after just 46 days if faced with continued outgoings, such as bills and mortgage payments.

Rob Clarkson, of Post Office Managed Services, said: “It’s concerning that so many people in the UK would not be able to maintain their lifestyle and provide for their families should their circumstances suddenly change.

“There is a common misconception that life insurance and critical illness cover can only benefit the very wealthy who have a large number of assets but as this research demonstrates, many families could benefit from it if only to protect their family’s day-to-day lives at a difficult time.”

Working families with parents in their 30s and 40s were found to be particularly ‘at risk’.

Further to that, one in four UK adults does not feel their household has a contingency plan in place if they were to lose their income for four weeks.

When asked why they have no provisions for an emergency, 26% said life insurance was too costly, while 19% said they actively avoid thinking about their family’s long-term financial future.

Given that circumstances could change at any time, it’s always worth being prepared for the worst.

How to prepare for a financial emergency

1. Start a rainy day fund

Start small and start putting away a portion of the money, even if it’s just a tenner a month, and gradually build up to what you can afford to save. Set up a standing order from your current account into a savings account on payday so saving is a priority. Every penny you save is an extra penny you won’t have to borrow if you face an emergency.

2. Life insurance

Life insurance can help cover costs in a range of emergencies, such as natural disasters, sudden illness, death and injury. It can also be ideal for families with no safety net, who don’t want to borrow money from friends and family, or who just want some extra security. Policies start at around £7 a month. The downside is that, in most cases, life insurance won’t cover redundancy.

3. Seek professional advice

If you find yourself out of work, trapped, or on the brink of becoming broke, there are people out there to help you. You can seek professional financial advice or get in touch with your local Citizen’s Advice to see what help you’re entitled to.

• If you’re unwell or you’ve left work to care for someone, you may qualify for a carer’s allowance. If you have a long-term health condition, you can also apply for state support to help with extra costs.
• If you’re out of employment because of your health, you may be able to claim Statutory Sick Pay or Employment and Support Allowance.
• If you’re disabled, you may be entitled to further help on top of benefits and tax credits. For example, you might get cheaper public transport, parking concessions and practical help with care from your local council.

What to do about debt if you lose your job

1. Claim on insurance

Ask your lender whether your mortgage, loan or credit card is covered by insurance.

• Mortgage payment protection insurance (MPPI) will cover your mortgage repayments when you’re not earning for a limited period.
• Payment protection insurance (PPI) will cover some or all of your loan or card repayments for up to 12 or 24 months.
• Short-term income protection insurance will replace a proportion of your income for up to 12 or 24 months.

2. Claim any benefits you’re entitled to

Claim any benefits that you might be entitled to, such as Jobseeker’s Allowance. If you’re entitled to benefits based on your income, you might also be able to get help with paying the interest on your mortgage through the government’s Support for Mortgage Interest, or Housing Benefit to help pay your rent.

3. Discuss your options

Also, contact the bank/building society that your mortgage is with or your landlord to discuss your options. Speak to a Housing Adviser in your local council’s housing department as soon as you can, especially if your landlord threatens eviction as you have rights as a tenant and your landlord has to follow certain procedures. If you’re worried that you might be made homeless, you need to get expert advice – visit the Shelter website or call them on 0808 800 4444.

4. Prioritise your remaining debts

Always prioritise your mortgage/rent and household bills. Your credit card company might be quicker to remind you of a missed payment, but credit card bills, unsecured loans, bank overdrafts and catalogue debts are classed as non-priority debts. The consequences for non-payment of these aren’t quite as great, whereas if you fail to pay the mortgage, rent or household debts you could lose your home or be evicted, have your electricity or gas cut off, or have essential items (such as your car) repossessed.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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