Whether it’s a sudden loss of a job or a natural disaster, preparing for the unexpected is a key factor in managing your finances. While it may not be possible to predict when an emergency may occur, you can be better prepared by understanding the types of financial emergencies that may exist, as well as steps you can take to prepare yourself for them.
Talk about it
This might seem like the obvious starting point, but sometimes, getting started can feel overwhelming. Reduce those fears and identify a clear first step simply by talking about your plan with your loved ones. Discuss options with them and explore a variety of scenarios. Keeping an open dialogue ensures you're all on the same page, which will allow you to act faster if and when the unexpected may occur.
Types of Emergencies
- Job Loss – Unfortunately, job loss is quite common, as it impacts 1 in 6 working-age Americans. According to the Bureau of Labor Statistics, US businesses laid off 21.9 million workers in 2019.
- Medical Issues – These might include a significant healthcare diagnosis or a car accident that prevents you from working. A planned elective surgery is not generally something considered a medical emergency, but it's good to have a plan for that possibility as well.
- Caregiving – If one of your family members needs additional care due to an illness or accident, you may find yourself in the role of caregiver for that person. In turn, this might mean you work fewer hours at your day job.
- Natural Disasters or Infectious Events – These can include hurricanes, tornadoes, earthquakes, and viral outbreaks, including the recent coronavirus pandemic.
Here are some pieces you should consider putting in your plan:
- List of names, numbers and websites where all your money is kept
- Create an emergency fund
- Life insurance
- Insurance documents and instructions on how to access them
- List of major credit card, student loans or other debts.
Once you have all the various pieces identified, it's up to you to identify the best format to put them all together. Binder? Electronic folder on your computer? The location of the plan pieces doesn't matter as much as the plan itself. Just make sure it's somewhere secure, and that your loved ones know how to access it.