Preparing for a Financial Emergency

A woman with laptop and going thru papersLife happens. Even with the best plan, surprises can take you off course. That might mean emergency car or home repairs. Add on the potential cost of a visit to the hospital and it’s easy to see how the unexpected can quickly add up.

Here are three things to do when you're planning for expenses you can’t predict.

1. Make sure you're covered

Insurance can help protect you from the big expenses that come with accidents, injuries and natural disasters. Insurance premiums add to your monthly budget, but if you ever need it, it can help save you from draining your savings.

Focus on the priorities

Insurance comes in many forms and can help you weather financial storms and maintain greater peace of mind.

To cover your...

Make sure you have

HealthMedical insurance, long-term care insurance
Income

Disability insurance
Life insurance

Home and possessionsHomeowners or renters insurance
VehiclesAuto, boat, motorcycle, RV insurance

2. Build an emergency fund

emergency fund iconAn emergency fund is a reserve of cash you can dip into in the event of a financial hardship. Try to set aside three to six months' worth of living expenses in an account where your money will be safe and easy to access, like a savings or money market account.

Having the money to cover unexpected expenses, like repairs or insurance deductibles, can help keep you on track with your investing goals — or prevent you from running up credit card debt. Whenever you tap your emergency fund, try to restore the balance quickly so it will be there in case of another emergency.

3. Keep important items safe

It's important to keep certain documents safe in case you need them in an emergency. A good option is to buy a fireproof, waterproof and portable safe and keep it somewhere in your home where you can get to it easily. Use the safe to hold things like:

  • A small amount of cash or traveler's checks (a disaster could shut down ATMs and banks)
  • A list of account numbers for bank and brokerage accounts
  • Copies of deeds, titles, wills, living wills, powers of attorney, birth and marriage certificates and passports
  • A list of emergency contacts, including doctors, financial advisors and family members
  • Insurance policies or names and contact information for insurance companies
  • A written inventory and photos or video of belongings inside and outside your home
  • The key to any safe deposit box you may rent at a bank
  • A small amount of cash or traveler's checks (a disaster could shut down ATMs and banks)

You can also keep electronic copies of your documents, files and personal information — either on CDs or on a flash drive. Your Internet provider might offer storage in their secure environment, but be sure to read the fine print; you want assurance that your information will not be easily compromised if stored in this type of area.

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