Financial Emergencies: Be Prepared to Respond

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It’s very likely you’ll experience a financial emergency at least once during your life. You could be in a traumatic car accident tomorrow that results in weeks of hospitalization, months of physical therapy and medical bills totally tens of thousands, even hundreds of thousands, of dollars. A natural disaster (flood, hurricane, tornado) could heavily damage your house — and your insurance might not cover all the rebuilding costs. You could lose your job and be unemployed for many months. These are only a few of the accidents and events that could cause a financial emergency.

According to most of the personal-finance experts, you should have a cash reserve that’s equal to a minimum of six months of your living expenses. In most cases, you’ll have enough money to keep a roof over your head and food on the table while you stabilize your financial situation.

Another part of your preparation for financial emergencies is to create a comprehensive financial plan. There are plenty of personal-finance computer programs to help make it easy. Balance your checkbook every month; keep excellent records of income, expenses, savings and investments; and review all these financial components regularly.

Your financial plan should also list what you own that you could convert to cash quickly. Scrutinize your recent expenses to determine exactly what luxuries you could eliminate during an emergency. Research other resources that could be available if needed. Finally, include a list of alternative income opportunities that you could quickly pursue if you were suddenly without a job.

You’ll do a better job controlling your finances and recovering from an emergency if you learn to value your assets and develop the discipline to protect what you have. Remember, financial stability and being prepared for financial emergencies have less to do with your income than having realistic goals and effective strategies that you follow faithfully, and revise as conditions require.

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