We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

How to plan for the worst-case scenario

Everyone should have a financial plan in place in case the worst happens. Here are the most important things to consider.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

You can’t control everything in life and sometimes things go pear-shaped. While it’s only natural that we should hope for the best, it also makes sense to plan for the worst. That way, we have something in place if things don’t go the way we want.

A good place to start is with your emergency fund.

The importance of your emergency fund

Bad luck has a habit of striking when we least expect it, and usually at the worst possible time. Whether that’s your boiler packing in or the engine light on your car’s dashboard flashing red – the cost of dealing with these bumps in the road all add up. An emergency fund is there to help cover these unexpected costs so they’re not as painful. It’s an important part of planning for the worst.

There’s no magic number of how much cash to hold. That’s because the amount you hold as cash will vary and depends on your circumstances and lifestyle.

However, we think around three to six months’ worth of essential expenses is about right. If you’re no longer working, you’ll need more than that – one to three years’ worth is sensible in our view.

This will cover your costs if you lose your job, or can’t work for a period. It will also bail you out if you’re hit with unexpected expenses. You don’t need to cover all your usual expenses, just the bare necessities, so think about the things you can’t live without.

Your emergency savings should be kept within touching distance. By that, we mean in a savings account you can quickly and easily withdraw from.

Instant or easy-access savings accounts are the best option for this. Withdrawals are immediate for instant access and usually take one working day for easy access.

More on building your emergency pot

Consider insuring your income

Income protection insurance does exactly what it says on the tin. If injury or illness means you can’t work, full income protection will give you a monthly income of somewhere between 50%-60% of your usual pay – either until you retire, return to work or pass away.

Alternatively, some will cover you for one or two years, which is a less valuable benefit, but tends to be cheaper.

If you’re employed, it’s worth checking whether any additional cover is provided by your employer. You might already have insurance.

How to protect your finances

Write a will

Nobody wants to think they won’t be around forever. Perhaps that explains why only two in five homeowners have a will.

However, dying without a valid will could mean your family inherits a problem. Your estate will be divided according to a fixed set of rules, irrespective of what your intentions actually were. It could mean what you leave behind isn’t given to those you wanted to leave it to.

If you already have a will, make sure you keep it updated. Marriage invalidates any existing will, so review your instructions when life changes, and don’t get caught out.

Power of Attorney

Unfortunately, as we live longer, there’s a chance we might need to live with a condition that makes it harder for us to make decisions for ourselves.

For this reason, it’s worth considering a power of attorney.

A power of attorney allows someone you appoint to make decisions for you when you no longer can – there’s one for financial decisions and one for health ones, and it’s worth having both.

Don’t forget to insure the most important thing – you

If you have anyone who relies on you, this is a great way to protect them after your death, and it’s much cheaper than people think. According to one of the UK’s leading life insurance brokers, the average monthly fee for life insurance in 2021 was £31.77, while the lowest cost cover was just £5 a month.

The price will depend on your age, health, occupation, how much cover you need and the length of the term – the younger you are, the cheaper the premiums.

Once life insurance is in place, it’s important to review it in line with any changes, like if you have more children or move to a more expensive area.

Some employers provide life insurance as part of their employee benefits package, so it’s worth checking if you already have cover. If you do, think about whether it’s enough to cover your family’s needs. Remember that any employer policy will end if you stop working for the company.

What protection is right for me?

Scenario planning

It’s impossible to be completely certain what’s heading our way, so it’s worth considering the possible scenarios that could impact your finances. For each scenario, consider the best course of action and come up with a plan to limit the fallout.

For example, if the Ofgem energy price cap rises again in October (which is looking more likely), where could you find extra money to make sure the heating stays on this winter? Alternatively, if the Bank of England raises interest rates again, will your borrowing costs rise, and how will you cover this?

There aren’t any easy solutions to some of the things that can go wrong. However, by considering the worst-case scenario and putting a Plan B in place, we can help protect ourselves if disaster strikes.

This article isn’t personal advice. If you’re not sure of the best course of action for you, ask for financial advice.

Editor's choice: our weekly email

Sign up to receive the week’s top investment stories from Hargreaves Lansdown

Please correct the following errors before you continue:

    Existing client? Please log in to your account to automatically fill in the details below.

    Loading

    Your postcode ends:

    Not your postcode? Enter your full address.

    Loading

    Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.

    What did you think of this article?

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    Editor's choice – our weekly email

    Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

    • Latest comment on economies and markets
    • Expert investment research
    • Financial planning tips
    Sign up

    Related articles

    Category: Markets

    Next week on the stock market

    What to expect from a selection of FTSE 100, FTSE 250 and selected other companies reporting next week.

    Matt Britzman

    01 Jul 2022 5 min read

    Category: Markets

    Next week on the stock market

    What to expect from a selection of FTSE 100, FTSE 250 and selected other companies reporting next week.

    Matt Britzman

    24 Jun 2022 5 min read

    Category: Investing and saving

    Investing for beginners – choosing your first investment

    Thinking of making your first investment? Here are some tips and ideas to help you get started.

    CJ Hill

    23 Jun 2022 7 min read

    Category: Essentials

    Rising interest rates, inflation and a falling pound – what it means for you

    With interest rates rising, inflation spiking and the pound falling, we look at what all this means for the economy, mortgages and investors, and what could be next.

    Susannah Streeter and Sarah Coles

    17 Jun 2022 6 min read