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, and
- 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, and
- 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.