Financial Emergency Preparedness
Financial emergency preparedness is vital to financial wellbeing. Emergencies can happen at any time, and when disaster strikes or we face the unexpected, our main concern is for our loved ones. But the reality is the financial consequences of an emergency can be devastating to our own wellbeing and that of our loved ones.
At any given time, different parts of the world are experiencing earthquakes, floods, wars, tornados, hurricanes, nuclear disasters, terrorism, and countless other emergencies. Not to mention, individuals are facing burst pipes, car breakdowns, accidents, job loss, and even lawsuits. The unfortunate truth is emergencies are expensive. Preparing for financial emergencies reduces losses, speeds recovery, and provides peace of mind. Below are several actions you can take toward financial emergency preparedness.
Protect Your Belongings
Get insurance. Insurance is possibly the most important way to protect your money, assets, and belongings. If your home is destroyed in a fire, the cost to replace your belongings could be astronomical. Insurance provides a way to recover that cost. Be sure to review your insurance policies and make sure they cover events likely to occur in your geographic area.
Take inventory. A home inventory is essential for insurance claims, but it’s also a good way to document your belongings for your own memory. Create a home inventory by creating a list of everything you own. There are free apps to help you go room by room and include pictures of each item. The easiest way to complete a home inventory is to create a video walkthrough of your home and notate your belongings. A video walkthrough won’t be sufficient for insurance claims, but it can help you create the list instead of trying to create it from memory.
Protect what’s important. While you’re creating your home inventory, make note of anything you consider too important to lose. Then find a way to protect or duplicate those things. Digitize photos and home videos so you have an additional copy of those precious memories. If you have valuable family heirlooms, consider putting them in a trust to protect them from creditors and lawsuits.
Protect Your Information
Document backups. Create copies of IDs, insurance documents, tax statements, estate planning documents, marriage certificates, and any other important document. If you keep digital copies, save them securely in an encrypted, password-protected file. If you keep physical copies, store them in a fireproof/waterproof container in a location separate from the originals, such as a relative’s house or a safe deposit box at a bank.
Guard against ID theft. Be cautious about sharing information unnecessarily. Many places ask for social security numbers, addresses, even birth dates without actually needing them. Guard your information and only give it out when necessary.
Check your bank activity. Look at your bank charges regularly to look for fraudulent charges and report suspicious activity immediately. Most banks and credit card companies won’t hold you liable for charges you didn’t make as long as you report them immediately.
Establish an Emergency Fund
Build your fund. An emergency fund is one of the most important and most obvious ways to protect against a financial emergency. Yet nearly one in four adults in the US say they have no emergency fund at all. An emergency fund gives you a financial buffer if you lose your job or have an unexpected expense like medical care or a home repair.
Keep cash on hand. Cash refers to money available in the bank as well as paper money. It’s important to have some of your emergency money in the bank where you can access it via credit or debit cards, ATMs, and online payments. But it’s also important to have physical cash in case of emergency. If there is a disaster in your area, you might not be able to access money digitally. ATMs might not function and phone and internet lines might be down. Physical cash can allow you to make essential purchases like food, water, and temporary accommodations.
Have available credit. In addition to having an emergency fund, having access to credit can save you a lot of trouble in an emergency. For example, if you have a $5,000 credit card open with the full balance available (as in, not used), you can use that to pay the upfront costs of emergency accommodations, home repairs, medical expenses, and so on, until your insurance claim is processed. Take efforts to increase your credit score so you can access credit at affordable rates.
Improve Your Financial Literacy
Know your numbers. Know your budget, your credit score, your income, your expenses. In order to prepare for the unexpected, you have to first prepare for the expected. You have to know what a regular day is like so you know what an irregular day is like. Make sure you know where your money is going (what bills you have, what your budget is, etc.) so if there’s a financial emergency, you know immediately how to adjust your spending. Things that you consider essential in your everyday life might be considered luxuries or unnecessary in the event of an emergency.
Be aware of scams. Unfortunately, there are scams taking place constantly. There are so many different kinds of scams with varying levels of intensity that nearly everyone has been or will be a victim of a scam at some point. The most important thing you can do to protect yourself and your money from scams is to be aware of the scams that are happening. It seems like everyone knows not to fall for the Nigerian Prince scam nowadays, but it is one of the longest-running internet frauds because there are still people who don’t know about it who fall for the scam. If you know about the scams, you can protect yourself from them.
Emergencies of all kinds can be costly and devastating. By preparing financially for an emergency, you can avoid losing everything by protecting, duplicating, or replacing the things you own. Some emergencies involve a direct loss of money, such as identity theft, while others require money for recovery, such as a house fire. Either way, emergencies affect financial wellbeing. Being prepared financially for an emergency mitigates the effects and allows you to focus on your loved ones instead of your financial losses.
- FEMA: Emergency Financial First Aid Kit
- Consumer Finance: Dealing with Disaster
- Red Cross: Disasters and Financial Planning
Find out how 101 Financial’s Workplace Wellness program helps families and individuals prepare for financial emergencies.