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How to Protect Yourself From Loss of Income
How to Protect Yourself From Loss of Income
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Money Management

How to Protect Yourself From Loss of Income

Money254
Doris Kendi
May 30, 2022

Loss of income refers to a situation in which we’re deprived of the ability to make money, and we can no longer cater to our expenses and pay our bills. Loss of income can happen to anyone, whether we are prepared or not.

Also read: Every Employee’s Nightmare: Loss of Income

Some of the events that can lead to loss of income are injury or illness, Retrenchment and termination, company closure, and retirement. Loss of income can have deadly effects on our lives, so we must have measures in place to protect ourselves from those effects.

Adapting these measures to protect yourself from loss of income will help you get back on your feet quickly, meet your commitments like servicing a car loan, and not interrupt the lifestyle you are accustomed to.

This article dives into some of the most effective measures you can use to protect yourself from loss of income.

Invest in Yourself

Investing in yourself is arguably the best way to protect yourself from loss of income. Investing in yourself will include advancing your education by getting a postgraduate and master’s degree. You can also earn professional certificates that are relevant to your field. 

You want to prove that you possess the most sought-after skills in the industry, are up to date with industry trends and can transition into different roles. This trait will make you valuable to your current employer, as they won’t afford to lose you. And in case you find yourself jobless, you will be able to find a new job faster and protect yourself from the effects of lack of income.

Just like with hard skills, you will also need to learn soft skills like time management, people management, critical thinking, and problem-solving. These abilities will make you valuable to current employers and attractive to prospective ones.

Another way of investing in yourself is learning a new skill for adaptability. When you lose your job, you can find a job in a different industry. 

Also read: Employed Full Time? Here are 7 Ways to Increase Your Income in 2022

Have your finances in order 

Having your finances in order refers to being in control of your money. Having your financial documents in order, having a monthly budget, saving targets and committing to them, taking on debts you can afford, and having emergency funds.

Having a monthly budget will help you know how much you need to spend and what to cut off when you can’t generate income. Emergency funds, different from savings, are monies you put aside to help you cater for your expenses when out of a job among other eventualities such as sickness. A rule of thumb is to have enough money in your emergency fund account to cater for at least half a year’s worth of living expenses.

Having your finances in order will also help you learn how to manage debt. You will only take on loans you can afford to repay even if you lose your income. Being in bad debt when you lose your income can force you to sell your assets. 

Getting your finances in order can be complicated; you should retain a professional financial advisor to teach you how to protect yourself if you lose your income.

Also read: Money and Me: Struggles of Living Paycheck to Paycheck

Create multiple income streams

Passive incomes are a great way to supplement your primary income and can come in handy when you lose your active source of income. They can replace your income and help you stay afloat until you are back in the job market.

Depending on how much you make from your other income streams, they can protect you so well that you will barely feel the shocks. Multiple income streams can be more beneficial when you retire and no longer have the energy to work and generate income actively.

There are many income sources that you can leverage even when you have a full time job. Here are some great income sources you can invest in;

Real Estate

You can develop real estate properties and rent them out. This will guarantee you passive income every month. This scheme will, however, require high investments in the beginning. 

If you do not have a large sum to invest in real estate, you can still invest what you have and generate passive income from real estate by investing in through Real Estate Investment Trusts (REITs).

REITs pull together money from different investors and invest in real estate. The profits generated from the real estate will be divided among investors and paid out as dividends. This way, you will constantly be generating passive income.

Side job in consultancy or passion projects

Consultancy is when you sell your expertise and ideas to other people. You will be helping people solve problems while getting paid. 

On the other hand, a passion project is leveraging your talents and selling them. For example, if you are a good narrator, you can start a side hustle as a voice actor, or if you are good at public speaking, you can get gigs as an MC.

You can do either of these and earn passive income, and in case you lose your job, you can always scale them and make more money. This way, you are protected from loss of income.

Also read: 8 Ideas to Create Multiple Sources of Income

Get Properly insured 

Insurance is a great way to protect yourself from unforeseen financial losses brought about by a sudden loss of income. Some types of insurance you should buy are;

  1. Health Insurance - Health insurance will help you settle hospital bills and get medicine when you cannot generate income. Health insurance will also prevent you from having to spend your savings.
  2. Income Protection Insurance - This type of insurance will reimburse you part of your income when you lose your income due to retrenchment, company closure, or health complications. Your insurer will cover you until you can get back on your feet.
  3. Disability Insurance - This type of insurance will cover part of your salary when you sustain injuries that prevent you from working. Disability insurance is a must-have for people working in high-risk industries such as construction.
  4. Life Insurance - This type of insurance mainly supports your dependents in case of your death. The insurer will pay them a considerable amount of money to them that will make sure they are catered for when you are gone. 

Insurance can play a vital part in protecting you from the devastating effects of loss of income. It will lower your expenses and help you stay above water until you are back in the job market.

Also read: Money and Me: Insurance, a Life Saver

WRAPPING UP

Protecting yourself from loss of income is central to safeguarding your financial future. Without a plan on how to protect yourself, you might end up depleting your savings and going into debt trying to navigate the effects that come with losing a source of income. 

Doris is a finance professional, freelance writer and SEO expert. She has experience helping businesses of all sizes create content that helps improve their site quality and increase their online traffic. She is a personal finance and wealth creation enthusiast and a frequent contributor to Money254. Visit Doris' personal website to learn more about her work.

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