By Emele Onu,Finance Editor

If you are imagining the extent you need to safeguard your finances in the New Year, the following posers will serve as a guide: Could you live without your income for three months, six months, or a year? If the answer is no, you need to build strong financial safety net for the proceeds from your business or employment in 2009.

If an individual saved five per cent of his income each year, a six-month period he is unemployed would eat up 10 years of savings. That is simple mathematics.

Owing to the ease or limited time with which savings can be squandered, personal finance experts recommend the building of a wide financial safety net for every individual.

The chances that one will soon fall back on one's financial safety net increase as one gets older and retirement knocks at one's door.

But that does not exempt young people. If one is still young, illness and injury can occur at any age. Car accidents, sports injuries, unexpected wounds, diseases and even pregnancy are just a few examples of instances that may warrant a young person to fall back on his financial safety net, earlier than expected.

According to experts, building a financial safety net is akin to setting up personal finance insurance against future uncertainties that may challenge one's income.

"It is almost a life-long exercise, built in one's active years and reaped when one becomes weak by age, health condition, unemployment and so on,'' said Jeremy Vohwinkle world's renowned personal finance specialist.

If one takes long-term disability insurance for instance, it will help replace one's income when one is unable to work as a result of illness or injury. That is the safety net.

Unfortunately, many people consider erecting the safety net a luxury, whereas it should be considered a necessity, especially for those that don't have other financial resources they could tap in the event of an illness or injury.

Reasons For Financial Safety Net

According to Andrew Okpor, an investment adviser, the major reason for "weaving" a financial safety net is to protect one's income-generating ability.

"It will, as the case may be, entail taking up a life policy, disability insurance, protecting one's dependants with life insurance, protecting one's future with emergency funds, investing for the future and contributing to a pension fund among others.

"The moment a financial safety net is in place, the individual is ready to turn to the task of accumulating wealth, he added.

Building the safety net entails a lot of financial planning and discipline and will challenge the individual's money-management capabilities as concerned areas such as budgeting, expenses, debt, savings, retirement and insurance among others.

Okpor said that careful combination and exercise of the foregoing are important for laying the groundwork for a solid financial safety net for the individual and the family.

On the whole, relevant steps that are imperative for weaving the net need to be taken by the individual and they include the following:

Consider Life Policy

If an individual is working hard to build a solid financial foundation for himself and his family, that needs to be protected, because if accidents and disasters happen, a person who is not adequately insured could be left in financial ruin.

Every person needs insurance to protect his life, his ability to earn income, and to keep a roof over his head. The local underwriters have recapitalised and have come up with various products that meet those needs of the individual.

Taking a life insurance policy is necessary if the individual has dependants - who will suffer financially if he is no more -children, for instance.

If the individual has no financial dependants, life insurance is probably not necessary, although many people also use insurance cover as part of their estate planning and cash accumulation regardless of their dependant status.

An insurance broker, Edwin Anoforo, said "the likelihood of being disabled is far greater for most people than the likelihood of dying during a given period of time, yet millions of people carry life insurance but no disability insurance. We insure our homes, our cars, and our lives, but sometimes we fail to insure our greatest asset: our ability to generate income. That should not be the case."

However, experts also warn that anybody planning to buy insurance should have adequate information about the pros and cons of the term - whole life and other types of insurance. It will pay to talk to an insurance broker or any other relevant financial adviser on what insurance policy to take or how much is enough.

Keep Emergency Fund

As a part of building the financial safety net, experts advise on having enough savings in an easily accessible account to cover one's living expenses for six months in the event of illness, job loss or other serious emergency.

Unfortunately, most people save money as an afterthought. When they receive income, the money is allocated to bills, food, rent or a mortgage or daily expenses among other things. The only time they add money to savings is when there is money left over. With such a backward thinking, there is almost no money left to be saved.

At the very basic level of personal finance, one is dealing with a budget; one makes money and then spends that money. Even if the individual has not created a detailed and written budget, let him continue to budget on a daily basis. When he thinks about spending money on something, he thinks about it and realises that by spending that money, he will not be able to spend that same money on something else. In that situation, he will be forced to save.

When a person creates a budget, he begins to see a clear picture of how much money he has, what he spent it on, and how much, if any is left . When he can clearly see where his money is going, he can then budget appropriately so his money is going where it should. It is then easy to save and build financial safety net.

After the individual has successfully created a budget, he will have a much better understanding of where his money goes and where he can possibly trim expenses. For many people, this is as simple as cutting back on some of the little things that can add up.

Even after creating a sound budget and cutting unnecessary expenses, one may still find oneself with lingering debt to get rid of. Using credit and taking on some debt itself isn't necessarily a bad thing, but when one can't keep up with the payments or borrow more than one can afford to pay back, one could be in trouble.

One of the most important steps in getting out of debt is to pay more than the minimum amount due each month. Even a modest debt balance can take over a decade to pay off if one simply pays the minimum amount due. In addition, paying the minimum will end up costing the individual huge amount in interest over the period.

For the individual that desires financial safety net, retirement savings should be a matter of priority instead of an afterthought. With the pension reforms, there is now good platform for retirement savings. It is advisable to consult a Pension Fund Administrator (PFA) for that purpose.

With fewer employers offering full pension plans in Nigeria, it has become more important than ever to save and plan for one's own retirement. Unfortunately, many people feel that they simply don't have enough money left over each month for savings. Whatever the size of one's pay envelope, it is advisable to save and invest a minimum 10 per cent.