Life is filled with unexpected events, both good and bad, including being involved in a serious accident. Every 7 seconds, a worker is injured on the job. Thousands of others experience injuries outside of work that lead to them being signed off work for a long time in order to recover.
While the recovery process can be a curveball in your plans, there’s another curveball you may be facing: financial uncertainty. The loss of income and medical bills that come with experiencing a long-term injury can be devastating if not handled with care and financial caution.
In fact, it’s the perfect time to get rid of your bad financial habits and perfect your financial planning skills if you haven’t already.
If You Don’t Budget, Now Is The Perfect Time To Start
With a long-term injury, outgoing cash for medical bills, and loss of income, budgeting has never been more important. If you weren’t using a budget for your finances before, it would be the perfect time to draft your first one to keep track of your outgoings and income. If you’re lucky enough to still be paid an income, your expenses may have increased, so it helps to see the new financial picture.
Alternatively, with no career income, you may find yourself dipping into your emergency fund or savings to survive. It also takes time for any settlement to be awarded, so it helps to be prudent with your funds. The good news is that there’s a long list of budgeting templates and mobile apps to choose from to get started like Mint, PocketGuard, and You Need A Budget (YNAB). Try to cut or limit outgoings. With uncertainty over your return to work and established income streams, it may be time to make some adjustments to your spending.
Ascertain Your Tax Obligations On Benefits And Settlements
Whether you get a lump sum payout or periodic payments as a personal injury settlement, it helps to know your tax obligations beforehand. In most cases, the tax authorities do not tax personal settlements, since they don’t view them as a source of income or capital gain. However, there are a few exceptions to the rule.
While compensations for injury costs, including medical bills, loss of consortium, and attorney fees, are non-taxable, you may be taxed if you have included the cost of medical bills on your previous year’s tax return. Also, if you do receive wages after the incident from your employer (whether it is periodically timed or included in your lump-sum payment), you are still required to pay your standard income tax rate based on your income bracket. Also, punitive damages and interest on a judgment are taxable. For more information, an attorney specializing in the cause of your injuries, whether they be due to medical negligence or workplace injury, will be able to provide answers on the tax obligations of your expected settlement.
Explore Passive Income Streams
Lastly, it may be a while before you get back to work, so exploring passive income options may be a way to keep income flowing in while you recover. If you have some savings on hand and handle risk well, you can try investing in the stock or real estate market. Another passive income stream is blogging or offering services using your skills. Offering consultations from home means you can work at your own pace and still earn an income.
To boost your finances while you’re signed off, there are also injury benefits you may be entitled to. First, check with your employer on their compensation package. Businesses with more than 20 employees are governed by the Employees State Insurance Act 1948. This means employees pay towards injury insurance benefits, which provides both medical and financial support if they do get injured. The government also offers welfare programs and disability schemes according to state and injury, so it is advised that you check with your local authorities
Being signed off sick for the long term can be a curveball for your finances, but it doesn’t have to end in despair and debt. With adequate financial planning and support, you can navigate this experience in your life – finances and career intact.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.