I frequently see people whose financial plans rest on a steady income. I’m not just talking about those living hand-to-mouth, never saving a dime. There are also the “spreadsheet planners” who have their financial lives all mapped out. They borrow large sums for a house or to invest, and rely on a steady income to keep up with the interest payments. As long as everything proceeds exactly as they planned, they’ll be multi-millionaires by the time they get close to retirement age.
I’d like to introduce these people to Heather Von St. James. Heather had a great life going but was hit with mesothelioma, a cancer caused by asbestos. Her story about the personal and financial costs she faced is definitely worth a read. (Disclaimer: I have no financial connection to Heather; I just found her story compelling.)
One takeaway from her story is that your income is not fully secure no matter how safe it seems. Heather’s story is a very specific case, but there are many different problems that can lead to long-term or permanent loss of income. In addition to health problems, you could face a situation where the type of work you do is no longer in demand. Workers in their thirties may find it hard to believe what they do could become irrelevant, but over a decade or more, many things are possible.
Heather points out that she was “under the care of my sister, who had taken three weeks off work to care for me while I recovered. All of her expenses came out of her pocket; she never got reimbursed for anything.” So, it’s not just your own health that is a potential concern. Your spouse, child, parent, or sibling could need your help. In Heather’s sister’s case, her loss of income was temporary. But, problems with a child’s health could easily force you to find different work with more flexible hours.
To the extent possible, we need financial plans that take into account the possibility of a reduced income. Taking on a huge debt is risky. You could be forced to sell your house or investments into a bear market.
There are a number of things you can do to reduce your risk. Being Canadian and having access to public health care is a good start. Having long-term disability insurance also helps. But there are still events that these protections won’t cover such as getting laid off and being unable to find new work at the same pay. The best thing to do to protect yourself is to build savings and limit your use of leverage. This means not borrowing based on the full size of your current income.
If you wish to learn more about mesothelioma, follow this link.