You never know when disaster will hit. Most of us will never find ourselves facing a sudden emergency like job loss, long-term disability or catastrophic damage from fire or storm, but if the worst did happen, could you manage? Being prepared financially for an emergency is the best way to make sure that, should disaster strike, you’ll land on your feet again.
Here are several important steps to take to protect your finances from unexpected misfortune:
Build an emergency fund
Every household should have enough cash to cover a minimum of three to six months’ worth of living expenses. This includes payments that must be made like rent or mortgage payments, food, utilities, car and credit card payments. If, for example, your living expenses total $2,000 each month, your emergency fund should be $6,000- $12,000. The money should be kept in a separate account that is easily accessible and safe, like an LGFCU Money Market Share Account. Also, keep a small amount of cash stashed in a safe place. If there is a power outage and your local ATM network is down for a few days, you’ll be really glad you have it.
Collect important documents
Having an organized filing system for your records can pay off in a big way when you need to quickly put your hands on important information. Here are some of the documents you want to have available at a moment’s notice:
- Identification information for each family member, including pet records. These documents include photocopies of driver’s licenses, Social Security cards, passports and birth certificates.
- Photocopies of all ATM/debit cards and credit cards, with contact numbers for each financial institution
- Spare book of checks
- Copies of insurance policies
- List of bank account and brokerage account numbers and contact numbers
- Phone numbers of family members, employers, doctors and dentists. Record the non-emergency numbers for police, firefighters and local emergency response personnel too, because in a non-emergency situation, you don’t want to tie up 911
- Copies of wills, trusts and other estate planning documents
- Medical records, including a current list of your family’s medications
- Photocopies of deeds to properties and automobile titles
- Household inventory of valuables
Store documents properly
Important papers should be stored in a fireproof and waterproof safe, lockbox or small backpack at home. Original documents that would be hard to replace can be stored in a safe deposit box. In the home, it is important to store these documents in a secure place because they contain sensitive information and you don’t want to risk becoming a victim of identity theft. Another option to consider is storing files of all your important documents on a flash drive that can then be kept in a safe or safe deposit box. Just be sure to update the flash drive at least annually.
Review insurance coverage
Every year, review your homeowner’s or renter’s insurance to make sure it is current – and sufficient. You can get an estimate of your home’s property value by calling a real estate agent, or if necessary, by paying for an appraisal. Compare these figures with your insurance policy to make sure you have full replacement coverage on the home. You don’t want any surprises if you ever have to file a property claim for damages.
Many times when a tornado or hurricane hits an area, it may also cause flooding. Some property owners believe that water damage from flooding is covered under a basic homeowners policy, but it is not. Flood insurance is extra. If you live in a flood zone and have a mortgage, the lender will require flood insurance. But otherwise, it’s a separate option. Again, make sure the coverage is adequate for your home and its contents.
Take inventory of your household goods to make sure your insurance coverage is sufficient to replace them. Consider taking photos or videotaping valuable antiques and collectibles in case they are destroyed. This will help if you need to file an insurance claim in the future.
Don’t wait—do it now!
Now is the best time to create your financial emergency plan and build your kit, because you don’t know what will happen tomorrow. Developing a plan and gathering your documents may take a little bit of effort, but it is time well spent. Make sure every family member, and perhaps a trusted friend, knows where the emergency kit is stored. The peace of mind that comes from knowing you and your family are prepared for any financial emergency is well worth it.