Be Smart Create A Financial Emergency Plan?
One of the first steps to building a solid and bright financial future is to create an emergency fund. In addition to creating your emergency fund, have you ever considered developing a financial emergency plan?
This may sound like an unnecessary step, but in the event of an unexpected financial emergency you will be glad to have both a plan and an emergency fund to help you move through that emergency and back into normal life.
By nature an emergency is unexpected. It’s generally thought that an emergency is not the best time to make big decisions. For these reasons, making a list of possible financial emergencies you might face, including a death of someone close to you or, being laid off from your job, becoming seriously ill, a fire in your home, suddenly having to replace your car or major appliance, etc.
Once you have your list, create a financial emergency plan for each situation. Write it down and keep it somewhere safe so that you or your family can access it in the case of any of those emergencies. Having those important steps written down will help reduce the stress and anxiety that you and your family will experience during a difficult time. Most importantly it will give you a reliable guide to follow to get you back on your feet financially.
Take a look at this plan for moving forward in case you are laid off from work.
• Lower (or cancel) all nonessential expenses.
I would immediately cancel Amazon Prime, my Netflix account and all the recurring costs that are completely discretionary. For services I couldn’t cut immediately, such as my two-year cable internet subscription, I’d downgrade the service to the lowest possible tier.
• Adjust my budget.
Since I’d need to live off my emergency fund, I’d need to adjust my budget to be deliberate in my spending.
• Learn how to apply for unemployment benefits.
I’d need to know the process for getting unemployment from my local state unemployment office. Learning it now would be easier than under duress.
• Decide how to tell my family.
This can be one of the hardest things to do, but preparing for it in advance could make it far less painful.
• Establish a plan for finding a new job.
Whether it’s setting up profiles on relevant job search sites or reaching out to my network, I’d establish that plan now so I could execute it later.
• Consider how to spend my downtime.
Maintaining a positive attitude during a negative experience — one that could persist for many weeks — is crucial. So is planning for the greater abundance of downtime during the week. I’d need to find projects that would give me a sense of purpose to combat the frustrations I’d experience during a job search. – USA Today
Steps To Take Now To Prepare For A Financial Emergency
Here are a few important steps to take now that will help you be prepared in case of a financial emergency. Take a look at these steps and consider other steps that may be important for your situation to help you stay one step ahead.
Keep an emergency fund sufficient to cover anywhere from three to nine months of expenses. This should be a savings account or other readily accessible asset that you normally don’t touch. One recommendation that offers some flexibility is to keep six months’ expenses in the fund with the idea you can use up to three months of it for unexpected expenses that fall short of a genuine emergency.
Various types of insurance are of course designed to help protect against financial emergencies. Health insurance, obviously, is obligatory given the high cost of care. Life insurance can support a family in the event of a breadwinner’s untimely death. If you have a big mortgage, mortgage life insurance that pays it off in the event of your death is an additional option. Homeowner’s insurance can guard against loss from fire or theft. Collision insurance for the car, which is generally optional even when liability insurance is required, protects against the loss of much-needed transportation or costly repairs.
Disability insurance, which is offered by many companies but can also be purchased individually, guards against loss of income due to injury or illness. Do you need all these? The short answer is yes, especially if you have dependents who rely on your income. As expected life spans increase, long-term care insurance is becoming desirable to protect your spouse or children against the high costs of providing home or institutional care for you.
Open a checking account at a credit union or community bank, where you are likelier to be seen as a person rather than just as a credit rating and can get approval for a personal line of credit that you can tap in an emergency. With the increased caps on federal deposit insurance, this generally incurs no risk. – NEAMB.com
Do you have a financial emergency plan?