Are You Prepared for a Financial Emergency?

After recently reading an article about the damage and disruption caused by Hurricane Dorian, I think it’s an opportune time to discuss planning for financial emergencies. One of my favorite quotes and one that is certainly appropriate for this topic comes from the great French biologist, Louis Pasteur: “Fortune favors the prepared mind.” As with most matters in life, an ounce of prevention is worth a pound of cure. When it comes to financial emergencies, having a plan in place can make a difficult situation more palatable. In my earlier years, I learned the rationale behind most of the recommendations below the hard way.

Here are some basic steps you can take to prepare for a financial emergency:

  1. Build an emergency fund of liquid reserves

    An emergency fund is cash that you have set aside for when those financial emergencies come knocking on the door. Car repairs, employment curve balls, health setbacks and family emergencies can and will happen. One of the keys is ensuring your funds are liquid and accessible. One could consider a high yield savings or money market account. The point is this money is available when you need it. Six months of spending reserves is usually considered standard.

  2. Cut Expenses (A.K.A. Plan B.)

    Many of us instinctively know there is some fluff we could trim from our regular spending. Do I really need that Double-Double combo with a chocolate shake from In-N-Out? Do I really need Amazon Prime, Netflix, Hulu, AND 200 cable channels? It is not a bad idea to know the difference of what you like to spend (Plan A) and what you have to spend for living expenses (Plan B).

  3. Get Proper Insurance

    Beyond required insurance (such as medical or auto) it could be prudent to investigate other areas of your life where risk is worth transferring. Do you have meaningful assets you’ve worked your life to acquire? Maybe it’s time to consider an umbrella policy. Lots of real estate in southern California? Perhaps earthquake insurance is in order. Examine the areas in your life that could use some protection.

  4. Maintain Access to Credit

    Sometimes you can do all the right things but still need a little bit more. This is where having access to credit can be a huge boon. Having a back-up to the back-up (cash reserves) is never a bad idea. For example, having a home equity line-of-credit (HELOC), but not drawing on it, could prove useful in a crisis.

  5. Back Up and Secure Important Documents

    I have friends who keep all of their original, important documents in a paper file at home. We are talking about wills, trusts, powers-of-attorney, medical directives, etc. Now, what happens if there is a flood, fire, theft or any number of other scenarios that destroys these documents? Keep copies with a trusted loved one, on a flash drive stored somewhere safe, or backed up to secure online storage.

Naturally, it is always more comfortable to enjoy the sunny days and not think about the rain. But when the forecast shows storm clouds on the horizon, you will be glad you prepared and brought an umbrella.

To read more about our commentary on financial markets, click here: Our Commentary

Please contact us if you have questions about your portfolio or financial markets: jeff@orioncapitalmgmt.com

 

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