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Take time to create a financial emergency plan

It's hard to plan for the worst when times are good, but if a financial emergency strikes, you'll be happy you did.

If you found yourself facing a major life crisis, would you be prepared to handle the financial fallout?

Many people do not have a Plan B or safety net if things do not go as planned financially. There are financial advisors who agree that it's best to have an emergency savings fund equal to 3 to 6 months of your expenses. A recent survey indicated only 39% of Americans are prepared for an unexpected emergency of $1,000.

The survey revealed that some respondents would resort to these methods for dealing with a financial emergency:

  • 8% would get a personal loan
  • 12% would rely on family or friends
  • 18% would use credits cards

Financial emergency planning steps

Having a plan in place helps you make rational decisions when faced with a crisis. Use these suggestions to create your own financial Plan B:

  • Discuss the topic: While it may be difficult to talk about "what-if" situations, you and your spouse or partner owe it to yourselves to address your hopes, fears and the realities of your family's situation. Consider various scenarios in your discussion such as what you might do if you lost the income of the primary breadwinner or if you needed to fund additional hours of child care.

  • Review your situation: Examine all available sources of income, your current insurance coverage and your retirement savings. Calculate your debt and review your emergency fund. Make sure your wills and estate plans are up-to-date. You should also create a list of colleagues and employers who could provide job leads if you were to be downsized.

  • Know who to call: Depending on your circumstances, you may need the knowledge of professionals such as your State Farm® agent, an accountant, a lawyer or a financial planner. Build relationships with these professionals now so they know you and are ready to assist you in a crisis.

  • Put your plan in writing: Record your Plan B and tell family members where to locate the document. Having a written plan can help you or family members take action without delay.

Creating a financial emergency preparedness plan

Identify common major emergencies 

  • Death or bereavement related expenses
  • Job loss or inability to work due to a disability
  • Unexpected home expenses
  • Vehicle replacement
  • Medical or dental emergency

Create a list of things you could do in the event of each major emergency

  • Develop a new budget and prioritize bills.
  • Apply for health, dental or vision insurance.
  • Eliminate or reduce non-essential expenses.
  • Apply for government assistance such as unemployment.
  • Identify necessary resources.
  • Consolidate debt.

Neither State Farm nor its agents provide tax or legal advice.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

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