There are millions of couples out there currently working and coming home to their fantastic house every day here in Australia. While they may not be living in 50 bedroom mansions on their own private island, for many simply having a safe and secure home is a dream come true.

A big part of that security though is financial security and for some people theirs is on the edge or worse, already fallen straight off a cliff. Perhaps they were going great 5 or 10 years ago but now they’re in deep, deep trouble.

Some have loans or other debts hundreds of thousands of dollars more than what even their house is worth. According to research a million Australians could be in some type of mortgage stress.

Life, Meet Lemons

There are many ways that an otherwise normal life can get thrown off course. You see and hear tragedies on the news everyday. People dying in bombings, getting shot or who knows what else but those aren’t actually the real risks to watch out for. The big three are:

  • Divorce
  • Medical Problems
  • Work Problems

Divorce – especially for the men out there – can decimate your finances. According to ABS data the average marriage lasts for about 12 years in Australia. That’s quite a bit better than it was in 1993 (10.7 years) but still isn’t a huge amount of time I think most people would agree.

Even if the divorce is agreeable and doesn’t end up in toxic fighting or suing each other into oblivion it still makes things very difficult. At a bare minimum all your living expenses essentially double as you move into different homes.

If we fail to get a contract of sale within three months they’ve asked us to voluntarily hand over the house.

Potentially more devastating is ongoing or major medical problems that may occur. Maybe you’re in a car accident, perhaps you need major back surgery after a sporting injury. You could slip and fall breaking an arm, leg or hip and require extensive recovery time.

Obviously this one is far more likely to occur the older you are but even young people can be hit with repeated medical issues that might be minor… but happen over and over again putting more and more strain on you and your life.

Finally the most common one – but usually easiest to deal with – is loosing your job or other work problems. Maybe you get retrenched or downsized. Let go. Shown the door. They’re going in a different direction. You’re part of a downsizing. They’re sorry.

You are constantly worrying that you are going to be one of those families who is living in their cars

The worst time this can happen is if you’re the only bread winner in the family. As a result you might need to take a significant pay reduction just to get another job, any job, quickly. Worse you might be without work for many months if your field isn’t hiring.

Whatever the case, there are these and many other problems that life throws at you throughout the years. So what can we do? You can certainly do things to lessen the chances of a medical problem or divorce but how about a Plan B?

Cash Is King

While there’s certainly direct, specific things you can do to address the above and other potential “lemons” of life, cash is a near universal fix. I’m sure you’ve no doubt heard of having a 1 month of 3 month or even 6 month emergency fund but you can not only take this concept far further, but utilise those funds better during the normal times by keeping them in your mortgage.

Perhaps your general yearly expenses are about $50,000. Now imagine if you were that much ahead already on your mortgage. This gives you the capability to redraw back out in case of emergencies whilst at the same time saving you on mortgage interest and makes things super simple.

You don’t need long term deposit accounts or have to pay tax on the interest that $50,000 earns, you just shove it into the mortgage and forget about it. Simple, efficient and gives you a solid Plan B if serious issues strike.

Sure, if your car gets slammed into causing you ongoing back issues that require surgery, large amounts of time off work and eventually a complete change of profession you’re not going to be very happy about it. But having a full year or more worth of “backup income” will reduce your stress levels, keep you out of the gutter and hopefully give you the precious time you need to get things back together again.

Make no mistake, emergency funds are essential to have and not just small ones either! Luckily there’s no better way to create and manage one than by Mutilating The Mortgage. So get to it!

For the newer readers... if you’re interested in learning more about being mortgage free in under 10 years, automatically and without cutting back on the things you love... You’ll probably like How To Pay Off Your Mortgage Early, Go From No Idea To Mortgage Free In Under 10 Years.

The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).