Financial Planning for Emergencies
With the Coronavirus at the forefront of news channels and more, we want to talk about preparing financially for emergencies. Please note, we are not disease experts. This article focuses on general ways to mitigate financial distress during various types of emergencies.
Insurance, Funds, and Liquidity
Do you have the insurance policies necessary? The main three include health, house, and life. Even if you have no pre-existing conditions, health insurance can save you money if something were to happen. In terms of home insurance, you can save tons of money should something happen to your home. Be sure to learn about the types of national disasters that are common in your area, and let this information help you plan for the types of policies you choose. Especially if you have children, life insurance policies are vital. These can ensure your family can take care of any expenses in the tragic event of a death.
The size of your emergency fund can depend on a few different factors. According to Dave Ramsey, the more stable your household income is, the less of a concern challenging times could be. For example, if you are a single household, you rely on salary versus commission, or you're employed rather than self-employed, these factors can contribute to deciding how much you should save for an emergency. The general recommendation is to have 3-6 months of salary and living expenses put away. This could include both liquid and illiquid savings (we’ll get more into this later. In addition to savings in accounts and portfolios, also keep a small amount of cash in our home as well as a full list of accounts, credit cards, insurance policies, and medical records.
While it’s important to have savings, it’s also important to have liquid assets in case of an emergency. Vantage put together this awesome infographic to help you plan your portfolio:
As well as having liquid assets in general, it’s also important to have a diverse portfolio. For example, the coronavirus is heavily impacting travel, so it may not be wise to have too much of your portfolio invested in travel companies. Talk to your financial advisor to help you plan a diverse portfolio!
When to Use Your Emergency Fund
You may have saved up to prepare, but it may be difficult for you to decide when the time is right to begin using your savings. Dave Ramsey advises to ask three questions when deciding if the time is right to use your emergency fund:
Is it unexpected?
Is it necessary?
Is it urgent?
If you answered yes to any combination of these three questions, it may be the right time to use some of your savings fund. If you’re still not sure, consider other ways to make money on the side. It doesn’t have to be an entire part-time job, either! Some common side hustles that work around your schedule include:
Poshmark or other Reselling Website
At the end of the day, your savings and the amount you save is more about giving you peace of mind no matter what happens in the future. Questions or concerns? Reach out to Practical Accounting Solutions today!
Practical Accounting Solutions
Katz, R., Attal-Juncqua, A., & Fischer, J. (2017). Funding Public Health Emergency Preparedness in the United States. American Journal of Public Health, 107(S2), S148-S152.
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Disclaimer: The views presented in this post are meant as educational resources and should not be taken as direct advice for your personal finances or small business. Should you have questions regarding a post relating to your specific finances, please contact us at firstname.lastname@example.org.