(Special) - It doesn't seem to matter whether it's setting aside money for an emergency or saving for retirement, Canadians just don't appear to be financially prepared for many of life's eventualities.
BMO Bank of Montreal's third annual rainy day survey, for example, recently found that while 66 per cent of Canadians feel financially prepared to handle a rainy day, the majority (51 per cent) have less than $10,000 in savings to cover unexpected expenses, 20 per cent have up to $5,000, 14 per cent have between $5,000 and $9,999 and 17 per cent have less than $1,000. Eighteen per cent of Canadians have set aside $50,000 or more for a rainy day.
Many financial experts and advisers recommend setting aside up to six months of your income for possible emergencies. "Financial emergencies such as a broken furnace or major car repairs can crop up at any time and without some form of financial cushion can potentially cause households to take on more debt than is necessary," says Janet Peddigrew, BMO vice-president.
A BMO Wealth Institute report found that even with a financial plan, very few Canadians have considered how major unforeseen events could affect their lifestyle and financial situation.
Eighty four per cent believe that a disability would cause the biggest financial problem for them followed by a separation or divorce, declining health of a spouse or partner and the death of a spouse or partner.
"A financial plan can be very helpful in ensuring you are well prepared for life's milestones such as buying a house, saving for a child's education and retirement, but one of the biggest mistakes individuals make is not stress-testing that plan against unforeseen events that can cause financial derailments," says Chris Buttigieg, senior manager of wealth planning strategy with BMO Financial Group. "By working with a financial professional who understands the potential impact of life events such as job loss or disability, Canadians can develop a more practical and proactive plan that provides greater peace of mind."
The loss of income, drawing down on savings and high medical costs caused by a disability or illness can quickly add up and become a financial burden on a spouse or family.
BMO suggests people set up an emergency fund to cover costs during a short-term disability, put money into a Tax Free Savings Account for future needs, and consider disability, income replacement, long-term care and critical illness insurance to reduce the impact on finances.
The premature death of a spouse or partner can have a huge impact on your financial situation. Many people will turn to insurance, the government, employer group insurance and personal savings to cover the shortfall.
However, they should also review their financial plan, beneficiary designations, will and power attorneys, but term insurance to cover risks that have a short time period such as remaining mortgage, education fund for children or income replacement, and consider permanent insurance to cover longer term needs and build up savings on a tax-deferred basis.
A key to financially surviving the often difficult process of obtaining a divorce is to have your financial house in order. Seventy per cent of Canadians are financially unprepared to withstand a separation or divorce with 57 per cent relying on personal savings to support their new lifestyle.
BMo suggests reviewing and updating your financial plan, updating beneficiary designations on life insurance policies, employee group insurance, RRSPs and TFSAs, get legal advice on wills and power of attorneys and adjust them as necessary, switch jointly-owned assets to single ownership, determine if any new or additional insurance coverage is necessary, and update credit and eliminate responsibilities or guarantees.
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
Copyright 2013 Talbot Boggs
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