Preparing for All of Life's Events
We've been hearing a lot about storms and bad weather lately. Some of these natural disasters have been terrible and very destructive, and many people have died or been injured. The aftermath will leave folks rebuilding for months or years. Those people that haven't planned for such a disruption will be hurting, both emotionally and financially.
It’s easy to forget about preparing for life events. It’s easy to put off planning for these things. But off until when? For many people, they never get around to it- ever! Then when the storm hits, they are the ones hurting. Let’s talk about some things you should consider getting in place for when, or if, a storm ever hits you.
Geographically, there are different considerations. If you live in the Smoky Mountains, you probably do not need flood insurance. But if you live in an area prone to flooding, or where flooding has happened in the past… you better have it! Flood insurance is essential. If you can’t afford it, you should not own property where it may flood. It’s that simple. (For related reading, see: The Financial Effects of a Natural Disaster.)
The Basics: Emergency Funds and Insurance
What are the other plans you should have in place? Let’s start with disability insurance. If you were injured escaping a flooding city, helping to rescue people, or even when cleaning up and rebuilding, could you afford to pay your bills without a wage coming in? What if you died in the storm or flood? Do you have enough life insurance in place to cover your family’s debt, and future expenses? You don't want to leave your spouse and kids with a huge financial burden. If you are not retired yet, a good amount of life insurance to have in place is anywhere from five to 10 times your gross annual wage. On top of this amount, you'll need an additional amount to cover any debt you may have, including mortgages, auto loans, college loans, credit cards, etc.
In addition to the basics I mentioned above, everyone should have an emergency fund in case of a long spell when income won’t be coming in. It doesn't matter where you live—an emergency fund of three to 12 months of your monthly expenses should be sitting in a savings account at your local bank. Make sure you include all monthly expenses, including your mortgage, utilities and food.
Emergency Funds Take Care of You and Your Loved Ones
I've been running into some folks lately that had to unexpectedly help a family member or friend out. This act really drained their emergency fund. If your family is prone to borrow, make unwise financial decisions, or you are just a big-hearted person, you could consider adding more to your emergency fund in case you need to help someone out. (For related reading, see: Why You May Not Need an Emergency Fund.)
If you decide to loan money to someone, even if it's your family, make sure you talk to a financial advisor first. Then, have an agreement drawn up by an attorney, and have it signed and witnessed. Make sure there is language in the agreement about how it gets paid back, what happens if payments are late, if it never gets paid back, if you die, if they die, if they get divorced, if they get disabled, etc. If it’s a business venture, make sure there is language on all the above, and language on how a partner can leave the business venture or sell their share. (For more, see: How to Lend Money to Family and Not Regret It.)
Whether it’s a hurricane, flood, earthquake, tornado, snow storm, power outage, nuclear leak, terrorist attack, or whatever else the world might throw at you, it's always a good idea to have an emergency fund!
My final note: don’t take stupid chances. If the authorities say to leave your home, leave your home! There are people who put the lives of their families, and the rescue workers, in jeopardy by staying in their homes. They either don’t have an emergency fund, they can’t afford to leave their home, they are stupid, or they are heartless.
As a CERTIFIED FINANCIAL PLANNER™ my word of advice is not to take big chances with your money. By big chances I mean: gambling in the market by investing in high-risk investments, loaning large amounts of money to family or friends, or putting a large amount into a business venture without thoroughly thinking it through and getting a few expert opinions. One bad decision, when taking big chances, can wipe you out, or even just mess up your retirement plans.
(For more from this author, see: Why Investment Brokers Are Better Than Brokers.)