Financial Preparedness: Accessing Money in an Emergency
Disasters can strike anybody at any time. We don’t like to think about it, but we are all just one car accident away from potentially catastrophic loss. A scary thought, right? Loss of property, loss of income, and most importantly, loss of life, are all possible. What is also possible is your ability to be prepared for those days.
One of the challenges following a disaster is rebuilding your life following the emergency. Americans at all income levels struggle during these stressful times. Having a plan in place to access money in an emergency to begin the recovery process quickly and efficiently is crucial.
Here are five ways to financially prepare yourself for an emergency:
1. Have a Stash of Cash
In recent years, we’ve seen power outages during disasters last for days. In the electronic world of money, this can be a major issue in obtaining necessities, like gas, groceries, water, etc. Keep some cash on hand at home in a safe or secret spot. Just don’t forget where you put it!
2. Establish an Emergency Fund
An emergency fund is money you set apart from other savings. It’s there to help support your during unexpected life events. Emergencies can take the form of an unpredictable expense, like sudden home repairs or hospital visits. They can also take the form of unexpected loss of income due to job loss, disability, or loss of a family member.
How much should you save and where should you keep it? The goal is to accumulate 3-6 months of expenses in an easily accessible bank account. If you’re looking to earn some interest on your emergency fund, a high-yield savings account or money market account are good options.
3. Purchase Disability Insurance
Disability insurance pays benefits when you are unable to earn a living because you are sick or injured. Most policies pay you a benefit that replaces a percentage of your earned income when you can’t work. Why is this important? Well, your chances of being disabled for longer than 3 months are much greater than you dying prematurely.
Consider what might happen if you suffered an injury or illness (let’s say, car accident or COVID!) and couldn’t work for days, months, or even years. How would you pay your bills? If you’re married, you may be able to rely on your spouse for income, but would the single salary be enough to support your household? Having appropriate disability insurance coverage enables you to access money for your daily expenses while you recover. Check with your employer to understand your group coverage options and consider purchasing a private policy for additional peace of mind.
4. Consider Establishing a Securities Based Line of Credit (SBLC)
If you have established some wealth and have invested financial accounts, establishing a Securities Based Line of Credit (SBLC) can provide you with liquidity in an emergency, without selling financial assets and generating tax obligations. Insurance companies can take months to process claims and get you your money, especially during mass catastrophic events (think wildfire burning down a town). The SBLC allows you to access money to rebuild while you wait for the reimbursement. Each financial institution will have its own rules and rates, so check with your financial advisor to determine your options.
5. Purchase Life Insurance
While the first three points are to provide financial relief during temporary disasters, this last point is incredibly important to provide long-term, permanent financial support.
Life insurance – it comes in many forms for many different purposes. Under the basic terms of a life insurance policy, the insurer promises to pay a certain sum of money to your designated beneficiaries upon your death. One of the most common reasons for buying life insurance is to replace the loss of income to a family that would occur in the event of your death. Your family is grieving your loss. The last thing they need is to worry about paying the bills or whether they can afford to stay in their home. Other reasons for purchasing life insurance are to pay off major debts, like mortgages, credit cards, or auto loans, pay for final expenses, or create an estate for your heirs.
How much insurance you need and the type of life insurance you should purchase really depends on your specific situation, and needs do change over time. Work with a licensed professional to determine the best options for you within your budget. And a tip: the younger you are, the cheaper insurance is, so don’t wait!
On the worst days of your life, having these financial tools in place will reduce your stress and help you and your family get back on track. If you need help with financial preparedness and planning for your future, reach out to a financial planner (like me!) for support.
Melissa Paddock, CFP®
Owner, Paddock Financial Planning
Financial Advisor, RJFS
CA Insurance #0M60519
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse the opinions or services of Peace of Mind Preparedness www.peaceofmindpreparedness.com.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Paddock Financial Planning is not a registered broker/dealer and is independent of Raymond James Financial Services.