What's in Your Emergency Toolkit?
Kathy Longo, CFP®, CAP®, CDFA Friday, 17 February 2017
You probably have an emergency kit in the trunk of your car or in the storage space in your SUV. Jumper cables, flares and other tools come in handy if you get in an accident or are stranded on the road.
If you’re an exceptionally cautious person, you may also have an emergency kit in your home. Batteries, flashlights, bottled water and other essentials can be lifesavers in case you lose electricity or other vital services for several days.
But what if you face a financial emergency? If an unplanned event alters your financial situation—if you or your spouse lose a job, or an adult child moves back into your home—how would you manage with less income or more household expenses? What if you or someone in your family suffers a critical illness or debilitating injury? Are you and other family members ready to manage someone else’s financial affairs?
These are important questions to ask. Unfortunately, they come up most often after an emergency or unplanned event occurs. Many people and families find themselves unprepared to deal with financial emergencies because they didn’t plan ahead, build up savings, or organize their financial resources.
How can you get ready for financial emergencies and unplanned events? These questions can help you think about what goes into a financial emergency toolkit and how to make changes that prepare you for life’s uncertainties.
Where is your important financial information? In an emergency, you may need to find personal and financial information fast. Bank and financial account numbers, usernames and passwords, Social Security numbers and other basic personal data can be extremely valuable when time is critical. Keep any essential documents in a place that’s easy to access but also secure. Plus, you may not need to keep any original documents handy—copies may be sufficient when you only need information in a pinch.
Do you have enough cash reserves? It’s smart to have enough savings to cover 3-6 months of household expenses in a cash account that you can tap for short-term needs. In the case of a job loss or a medical emergency that keeps someone out of work for a long time, this pool of money would replace a portion of the lost income until the person is back on their feet. If you deplete this account in the event of an emergency, be sure to replace it as quickly as you can.
Is your insurance coverage sufficient? Gaps in insurance coverage happen in two ways. First, an existing policy may not cover all expenses or all types of emergencies or losses. For example, some homeowner’s policies may not cover simultaneous events (e.g., storm damage and flooding) if one event is excluded from coverage. (Flooding is a common exclusion on many home insurance policies.)
Second, you may not have any coverage at all for some of the more common risks you face, such as long-term disability. A significant injury or illness can keep a wage earner out of work for an extended period. Without disability insurance, a family may drain their savings and raid their retirement accounts in order to cover the mortgage or pay utility bills. Disability insurance can provide resources that can help people avoid financial devastation or bankruptcy.
Who has the responsibility to speak for you if you can’t? Many people and families don’t have plans in place in the event that a spouse, parent or other family member becomes incapacitated. This can make decisions unnecessarily difficult for families at the worst possible time.
People avoid discussions about living wills and advanced directives because they are uncomfortable. That’s understandable, but not an excuse. A lawyer, estate planner or financial advisor can guide you and your family in completing many of the essential documents. But it’s also important for individuals named on documents like health care powers of attorney to understand their duties and be comfortable making important decisions on behalf of others.
Being prepared conveys confidence. When you and your family have a financial emergency kit in place, you will be better able to cope with the stress of emergencies and unexpected events. Everyone will feel a greater sense of confidence and comfort when faced with critical decisions. And most importantly, you can avoid significant financial setbacks and stay on course toward achieving your longer-term financial goals.
About the Author
Kathy Longo, CFP®, CAP®, CDFA
Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.