During turbulent financial times, having a financial emergency plan might provide you with a proverbial life preserver. Whether it is an emergency fund to help you tackle an unplanned expense, insurance to cover an unexpected accident or disaster, or a "go bag" that contains all your most important records, organizing your finances may help you feel prepared to handle anything that might come your way.
However, this financial preparedness does not come naturally. In fact, only about two-thirds of Americans could cover an unexpected $400 expense.1 Here are some of the most crucial steps you may take to work on financial preparedness.
Create an Emergency Savings Account
Having some cash set aside for emergencies or unplanned expenses may help you avoid going into debt when disaster strikes.
If you do not think you have the ability to save, start with a small amount. Even as little as $10 per week may add up to more than $500 by year-end. Consider cost-saving strategies like canceling or downgrading subscription services, using coupons, or taking on a part-time gig—then banking your money earned as savings.
Every dollar you pay toward interest on debt is a dollar you are not able to spend on something else—or add to your emergency savings account.
If you have high-interest debt like credit card debt, payday loans, or auto title loans, and you are not in the position to afford to repay them immediately, investigate any lower-interest options that you may find. Those with moderate to good credit may qualify for a low-interest or no-interest balance transfer offer. This strategy may allow you to transfer a high-interest debt into a lower-interest debt, helping your payments go further toward paying off the principal balance.
Review Your Insurance Coverage
Even the most-wealthy households might have a challenge covering the cost of a life-changing emergency, such as a fire, flood, or natural disaster that destroys your house or an auto accident that results in severe injuries. It is important to have adequate insurance to manage risk and provide a source of funds if you are in a serious situation. Check your insurance policies regularly to determine if you have sufficient coverage for the unexpected.
Secure Important Documents
If your home caught fire today and you had to escape quickly, would you have the money and documentation in your possession to start rebuilding? Keep your most important documents—birth certificates, passports, Social Security cards, insurance policies, and financial statements—in a waterproof, fireproof container you may easily grab in an emergency. You may also want to keep some cash in a safe location in case of a power outage or other emergency when ATMs are not working.
This information should make it easier to contact your insurance company, make any claims for disaster relief funds, or take the other steps you need to move forward.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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