Save For a Rainy Day. You Never Know When It May Pour...
/September is National Preparedness Month, and part of preparing for emergencies and natural disasters is making sure your finances are in order. After all, being prepared is what financial planning is all about. Three important pieces of a financial plan that relate to preparedness include: Emergency Savings, Adequate Insurance Coverage, and Access to Important Records.
The first step in any financial plan is ensuring you have Emergency Savings. This means having at least 3 to 6 months of essential expenses (such as mortgage or rent payments, food, gas for your car, and insurance) worth of cash set aside in a savings account. Imagine a worst-case scenario; a tornado rips through your town and destroys the building where you go to work every day. You and your loved ones are okay, but you’ve lost your job unexpectedly. How are you going to pay those bills that keep coming each month?
According to the Survey of Household Economics and Decisionmaking completed by the Federal Reserve, 40% of Americans don’t have enough cash saved up to cover a $400 emergency. If you are part of that group, make saving a little each month a priority to get to your goal. Even small changes like skipping your daily latte for coffee made at home or choosing to take your lunch to work each day can add up to big savings over time. There are free online tools that can help you create a budget like this one from the Federal Trade Commission.
Another important part of your financial plan is ensuring you have Adequate Insurance Coverages in place. Natural disasters can cause property damage resulting in a partial or total loss of your home and its contents. Whether you own or rent, check with your insurance carrier annually to ensure your policy will cover you in the event that you are temporarily or permanently unable to live in your home or access your belongings due to various hazardous events. Consider an umbrella liability policy to protect your net worth in the case of an accident caused by you or one of your children and discuss the necessity of flood insurance with your insurance agent as most homeowners and renter’s policies don’t cover this common disaster. As well, you should note that earthquake insurance is optional in Indiana. Although we don’t experience them often, if you haven’t elected it, you won’t be covered if we end up having one.
If you already have medical coverage in place, consider life insurance and disability insurance policies to protect your loved ones in case an accident or natural disaster takes your life or future ability to earn. Lastly, make sure you know your policy limits, deductibles, exclusions and claim notification requirements before a disaster strikes. Remember, it is always better to have insurance and not need it, than to need it and not have it.
Easy Access to Important Records in the event of an emergency can keep a bad situation from becoming even worse. Once you have your emergency savings and insurance policies in place, you’ll want to make sure you get your important records into a safe place like a fireproof box, a safe deposit box, or into remote cloud storage. Documents that should be secured but easily accessible are insurance policies, birth or marriage records, and a home inventory including items like receipts for large purchases and serial numbers for appliances and electronics to make insurance claims less stressful. If you don’t already have a home inventory, you can easily make one by using free apps on your smartphone or by taking photos in each room of your home.
For other ways you can participate in National Preparedness Month, check out www.ready.gov/september. If you’re not confident that your financial plan will weather a storm, give us a call to discuss how we can help.
- Margaret Gooley, CFP®, Worley Erhart-Graves Financial Advisors
