No one likes to think about catastrophes and emergencies. Still, preparing for financial disaster is important. If you don’t, it could cause irreparable harm to your current and future finances.
Guest blogger Nichole Coyle, CERTIFIED FINANCIAL PLANNERTM, shows you how to prepare if an unexpected financial disaster occurs.
1. Create an Emergency Fund
If you don’t have an emergency savings account yet, it’s time to get started! Ideally, you should save enough to cover between three months of living expenses and six months of income in your emergency fund. The amount you’ll need varies slightly depending on your income security, if you are self-employed and different lifestyle factors.
It may seem daunting to save up an entire three months of expenses when you first start off. To make it more manageable, try setting a smaller goal and building from there. For example, if your first goal is to save $500, once you hit that, reach for $1,000. Then continue socking away, little by little, until you reach your ultimate goal.
By having an emergency fund, you’ll have cash available for insurance deductibles, car or home repairs, medical bills, job loss, and so on. And you won’t have to rely on a credit card or borrow money during a financial disaster.
2. Invest Excess Savings from your Emergency Fund
If you have more than 6 months of expenses already saved in an emergency fund – good for you! At this point, it’s usually a good idea to talk to your CERTIFIED FINANCIAL PLANNERTM about investment options. Why? Savings accounts don’t typically offer high dividend rates. Leaving ALL your money in savings isn’t great when you can earn more interest off of investments. However, keeping up to six months in your savings allows for quick, easy access to stable funds in the event of an emergency.
3. Review your Auto Insurance
Having the proper auto insurance coverage is crucial in case you are in an accident. Your insurance policy covers your liability to others when you are at fault. It may also cover repairs on your own vehicle, as well as extras like roadside assistance and car rentals.
Ensuring you have proper coverage is important because it creates a safety net if you are personally liable for damages. If you skimp on coverage, you may end up financially responsible for damages exceeding your policy limits. So, as life events happen, it’s a good idea to check in with your insurance agent to make sure you have the proper coverage to avoid a future financial disaster.
4. Make Sure You Have Renters/Homeowners Insurance
Renters insurance typically covers all your property (clothing, electronics, furniture, etc.) in the event of a calamity. If there is a fire, theft, or natural disaster, renters insurance helps you replace the tangible items that were destroyed or stolen. Also, most renters insurance policies include liability coverage. So, if someone gets injured while in your home, this coverage can help protect you.
Homeowners insurance covers all of that AND the house itself. So, if there’s damage to a roof from a hailstorm or a tree limb falls on a garage, the insurance policy will help repair or replace those things.
Most policies also include benefits like “loss of use.” This applies if the loss makes it unsafe to remain in your home (a fire, for example). Should that happen, the policy covers a certain amount for you to stay elsewhere until your home is restored.
5. Find the Best Option in Health Insurance
Health insurance coverage is essential to protecting your financial security. Just one trip to the ER can easily cost over $10,000 without it, if not much more.
Here are some options to help save on your health insurance:
- Stay on your parent’s insurance plan if you’re eligible. Many plans allow children to remain on the plan as a dependent until age 26, or even 28!
- Utilize your employer’s plan
- Look at options through the Federal health insurance exchange
- Purchase a private insurance plan
- Consider a health cost-sharing plans
- Take advantage of Medicare and Medicare Advantage Plans
- Sign up for Medicaid/CHIP, if you’re eligible.
Suppose you don’t go to the doctor often and are generally in good health. In that case, it may be worth considering higher deductible, lower premium plans with very little for day-to-day expenses. These are generally called catastrophic plans because they provide a maximum “out of pocket” limit for you so that if you have a major medical expense, you aren’t crippled by medical bills.
If you have a health condition that requires treatments, medications, and/or multiple specialist appointments (or you are pregnant or planning for an upcoming surgery), a lower deductible plan may be best. While premiums might be higher, it offers lower out-of-pocket expenses for the care that you need.
Regardless, it’s wise to revisit your options annually or when life events change, such as births, deaths or job changes. Review your employer’s options or speak to a health insurance professional to help you find the best solution for you.
6. Keep Disability Insurance for a Financial Disaster
Your most valuable asset, especially while young, is your future earning power. However, having a disability, even for a short time, can have substantial economic consequences, making disability insurance important to consider. Some employers offer short- and/or long-term disability coverage for their employees. Supplemental plans can also help fill in the gaps in the event of a disability.
This coverage isn’t just for injuries on the job. Illnesses are responsible for 90% of disabilities. If you have a hard time paying your bills without the income you earn at work, you should speak with your CERTIFIED FINANCIAL PLANNERTM about your disability insurance coverage.
7. Plan for Life Insurance
If you have someone relying on your income or have debt, consider finding a life insurance policy to suit your needs. In general, life insurance pays a tax-free benefit to your beneficiaries. This means that your spouse and/or children will receive cash that is NOT taxable to replace your income. This payout can also pay for funeral costs, cover debts, and cover other needs.
Life insurance cost and availability is affected by age, health, and the type and amount of insurance purchased. Speaking with a CERTIFIED FINANCIAL PLANNERTM can help you determine which life insurance policy will best meet your needs.
8. Think About Extended Care
Also called long-term care, extended care insurance helps mitigate the high costs of assisted living, in-home care, and nursing homes. These policies protect your hard-earned retirement savings from being wiped away quickly if you need long-term care. Health insurance and Medicare do not cover long-term care costs. So it’s a good idea to think about how you’ll foot the bill for these expenses by planning ahead.
Bringing it all Together
While there are many options to help insure you and your family and protect your financial security, not all of them make sense for everyone. As life events happen, your needs also change. Speaking regularly with a CERTIFIED FINANCIAL PLANNERTM can help you assess your current situation and your future goals and design a plan tailored to your specific needs.
Don’t let a financial disaster destroy all the planning you’ve done. If you would like to discuss more about your specific situation or review your current plan, I am happy to help.
Nichole M. Coyle,
CERTIFIED FINANCIAL PLANNERTM
20333 Emerald Pkwy, Cleveland, OH 44135
Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor. Cetera is not affiliated with the financial institution where investment services are offered or any other named entity. Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.