How to build a financial survival kit
Volcanoes around the country have been rumbling. If they suddenly blow their top, hopefully you've got a torch, some water, a crate of baked beans and other essentials stashed away under the stairs.
But if your job suddenly goes up in smoke, do you have a financial survival kit in place?
Unemployment or loss of income is, by a long stretch, the number one cause of bankruptcy in New Zealand. And Kiwis seem to be peculiarly unequipped to deal with a Don't Come Monday notice.
"We're a bit unusual," says Peter Neilson, chief executive of the Financial Services Council.
In many other countries, including Australia, it's government policy for everyone to have some sort of compulsory income protection insurance in place.
The usual scenario is that when you lose your job through disability or illness, you continue to receive 75 per cent of your pay for several months until you're back on your feet.
Here, income insurance is entirely voluntary, and probably won't help if you do get the dreaded pink slip.
As the Citizen's Advice Bureau warns, many people mistakenly think income protection insurance pays out for a job loss. Actually, it's designed to cover you if you become too crook to work or suffer a disability.
There are some stand-alone "redundancy insurance" products available, but they're few and far between.
Asteron has one such offering. If you're on a salary of $50,000, your premiums add up to about $600 a year. After a six month stand-down period, a legitimate job loss will net you up to 40 per cent of your income for as long as half a year - in this case, $10,000.
But usually, you'll have to tack redundancy cover on to existing policies for your mortgage, if you have one, or life insurance.
BNZ Lifecare Insurance, for example, offers an optional extra redundancy benefit that pays out a proportion of your income for six months.
Running a few scenarios through the insurance calculator shows that the add-on can roughly double the cost of premiums.
Neilson says the interest in income protection is growing, but the uptake isn't huge. That's partly due to a redundancy system that was historically quite generous, as well as the state safety nets.
"People expected income benefits would be available when they needed it," he says.
The current system works, but only for those out of work for a short length of time, who have enough savings to scrape through.
Clearly, many don't.
Analysis of figures from the Insolvency and Trustee Service shows that at least 774 people in the 2010/2011 year were bankrupted after failing to cope with a job loss or unemployment.
If your household relies on a single income and it would be disastrous to lose it, or if you think you might struggle to be re-hired, then the insurance options are worth considering.
More importantly, and at little cost, you can set up your own emergency cash buffer.
Auckland financial planner Susanna Stuart, of Stuart & Carlyon, recommends having enough money on hand to cover at least two to three months of essential expenses.
But make sure it's not locked away and tricky to cash up, such as invested in the sharemarket. It's Murphy's Law that when you're forced to sell in a hurry, your trusty stock will have just hit an all-time low.
Keep the money tied up in a high interest-bearing bank account, suggests Stuart, where it will be available at relatively short notice.
That's the preparation work - the equivalent of filling the bathtub. But how do you weather the storm when or if it hits?
First, make sure you squeeze your employer for everything you're entitled to when you leave your job. Unfortunately, that might not be much.
"There is no general right to be paid redundancy," says Alan Knowsley, an employment law expert and partner at Rainey Collins.
It all depends on the terms of your employment contract and on personal circumstance, he says.
Employees can always try and negotiate a better deal, but you will need some bargaining power.
That leverage might come from a dismissal that has been handled unfairly, or some kind of action/inaction by your employer.
"In this case it is really just trading off the threat or risk of a personal grievance claim against getting the employee to leave quietly," says Knowsley.
Other than bargaining for a redundancy package, make sure you collect any holiday pay owing, long service leave or other company benefits.
The next step is battening down the hatches and creating an emergency budget. According to Statistics NZ, the average time between jobs was roughly 9-13 weeks last year.
That means you might need to live on the smell of an oily rag while you're furiously firing off resumes.
The easy targets for cutting expenses are the luxuries like Sky TV, magazine subscriptions, booze or takeaways.
It can help at this point to take an inventory of all your assets, too. That includes any investments like shares or retirement funds. Hopefully you won't have to sell anything, but at least you know where you stand.
Sorted.co.nz recommends taking a close look at your budget to see how your household can cope with reduced income, and working out exactly how long the emergency fund will last.
Finally, get on down to your local WINZ office and join the dole queue. The maximum amount you can get is just over $200 a week, but every little bit helps.
A Ministry of Social Development spokesman says there will be a stand-down period depending on your circumstances - how you left your job, whether you got a payout and whether you received holiday pay.
But it does help to go in and get it sorted straight away so you know how long you might need to go it alone.
At the same time, WINZ will get you to fill out a profile listing your skills, qualifications and experience.
You have to accept job offers when they come up, but they will be tailored to that profile. That means if you're a down-on-your luck professional, you won't get ordered to dig ditches or flip burgers.
In this market, job security is a rare commodity. If you've got your financial survival kit in order, that's one less thing to worry about.