If you haven’t already done so, now is a good time to prove your finances urgently. Doing so can help limit your overall disruption, reduce your stress, and get you better through any emergency — whether it’s a family crisis, a hurricane, or a global economic crisis.
Key Takeaway
: You never know when an emergency will occur, so it’s best to have a plan to help you get through the crisis.
Due to the normal depression and boom cycle of the economy, there will always be a recession.
To be prepared, save on an emergency fund, make sure your insurance is adequate, create a budget, and pay off debt.
Specify financial and medical powers of attorney and create a will.
Boom and bust cycles: While it is difficult to predict when or if a recession will come, recessions eventually occur because the economy goes through boom and bust cycles
. On September 29, 2008, the Dow Jones Industrial Average (DJIA) fell 777.68 points (6.98%) intraday, the largest decline in history. Today, we can almost miss the good old days, when DJIA losses were measured in hundreds, not thousands.
In 2020, when the U.S. first woke up to the severity of the economic crisis and lockdown — a recession could be inevitable — markets suffered epic losses that made the 2008 financial crisis look like small potatoes. What is now known as the 2020 stock market crash began on March 9, when the Dow fell 2,013.76 points, or 7.79%.
On March 11, the Dow fell 1,464.94 points, down 20.3% from its Feb. 12 high, marking the end of a bear market and an 11-year bull market that began in March 2009. On March 12, the Dow fell again by 2,352.6 points (9.99%). On March 16, the Dow fell 2,997.10 points (12.93%). Throughout 2020 and 2021, markets rebounded as optimism about vaccines and the global economic recovery took hold. But events like the 2020 crisis show that bear markets can occur even when the economy is healthy.
We never know when an emergency will happen – whether it’s a hurricane, an earthquake, or your own changing financial or medical situation. It pays to have a plan that will help you and your loved ones through the crisis.
It’s never too late to provide emergency protection for your finances.
When financially healthy
and ready, it is easier to respond to and adapt to emergencies. First, look at your finances. Pay attention to your income, savings, investments, net worth, and debts. If you’re like most people, you still have room for improvement when it comes to your financial health. Here are some things to deal with:
Make a budget and stick to it. People usually know how much money they have coming in, but seeing where your money goes can be shocking. If possible, find ways to reduce costs. Think about it: do I really need it? Do I already have something I can use? Do I want this more financial stability than I want?
A percentage of income that saves and invests each month. Include it in your budget to help make it happen, and review your progress annually. Even though it’s never too late to start, if you start early, your money will have more time to grow. Keep in mind that recessions are temporary. Think long-term, don’t panic. Believe that the best time to invest more is these times. If you have extra money, invest in it and most importantly don’t sell your investment at those times.
Organize your important documents so you know where to find them in case of an emergency. Consider putting hard-to-replace documents, collectibles, and heirlooms in a safe. However, since you don’t have 24/7 access to a safe, don’t put anything you might need in it – such as a unique copy of your passport or living will, advanced medical instructions, or an enduring power of attorney.
Improve your credit score. During recessions, lenders favor the strongest borrowers. If you have a higher credit score, you’ll get better terms and interest rates.
Designate a financial power of attorney who can make financial decisions on your behalf if you are physically or mentally unable to handle your affairs.
The emergency fund financial planner recommends that you set aside three to six months of living expenses in the emergency fund
. If you can, it’s better to save more. Remember that your emergency fund should only be used in real emergencies, such as when you lose your job, recover from a natural disaster, or need to pay for medical bills.
Quick Cash
If you don’t have an emergency fund, or you’ve burned it out, you may want to raise some cash as soon as possible. Here are a few options for doing this:
Walk through your home and garage to find something you can sell. Post your items to online marketplaces such as Facebook, eBay, ThredUp, OfferUp, LetGo, or hold a yard sale.
Borrow money from your retirement account. You can apply for a short-term loan from your 401(k) and do your best to pay it back on time. The maximum amount you can borrow from a 401(k) plan is 50% of your vested balance or $50,000, whichever is lower.
Borrow from friends or family. This one is tricky because it puts a strain on relationships. Be careful with your promises and always keep them.
Earn extra cash. Work overtime in an existing job (if it still exists), ask for a long-awaited raise, or find a side hustle. With the increase in working from home, many job sites, such as FlexJobs, advertise flexible working hours, remote contracts, or part-time work. Sites like Upwork and Freelancer have a wealth of freelancers who can work on many skills. The same goes for TaskRabbit.
Any money you borrow from a 401(k) loses the benefits of tax-deferred income growth.
Debt Management
It’s much easier to face emergencies if you don’t have a lot of debt. Good debt has the potential to increase your net worth — such as borrowing money to go to college, buying a house, or starting a small business. Bad debts are when you borrow money to buy things that don’t increase in value or generate income, including cars, clothes, and most credit card debt. Whether you’re facing an emergency or not, it’s always a good idea to avoid bad debts as much as possible. However, if you are unable to pay your bills due to an emergency, you can:
Apply for low-interest loans to consolidate high-interest debt.
Ask for debt settlement and the lender forgives part of your debt.
Ask your lender about debt relief programs.
Insurance
is an important part of contingency planning. Review your insurance (including property, health, life, auto, and umbrella policies) to make sure you have the right coverage, and make changes if necessary. See if you should buy disability insurance to help replace earned income if you become too disabled to work.
You can save on premiums by taking advantage of any available discounts, such as bundling your car and contents insurance. It’s a good idea to call your insurance provider once a year (for example, when you receive a renewal notice by mail) to make sure you don’t miss a deal.
Healthcare
: Making sure you have adequate health insurance is just one aspect of your overall health care. To be prepared for an emergency, you must have a medical power of attorney, which is a legal document that gives a person the authority to act on behalf of or on behalf of others.
Just as important: anyone over the age of 18 must give written permission for others to receive medical information about them – even if other adults are parents. If an adult child is incapacitated, you will need a medical authorization to make decisions on their behalf. So, in addition to making sure you’ve assigned that power to someone just in case something goes wrong, make sure that both adult children and other adults in your household have these documents ready.
Making a Will Everyone needs a Will
in addition to a medical (and financial) power of attorney, even if you are still a long way from old age. A will is a legal document that spells out your wishes. If you die without a will, your wish may not be fulfilled and the court will be responsible when your estate goes to probate and may charge an additional fee.
A living will is a separate document (and also important). It spells out your desire for medical care in the event of incapacity, including whether you want resuscitation or whether you should use life support to prolong your life.
When disaster strikes, any emergency is devastating and difficult, even if you are prepared for it. However, it can be more challenging if you don’t have a plan. Emergencies – whether natural disasters, illnesses, or economic downturns – are almost inevitable, so it makes sense to be as prepared as possible. This way, you can have fewer distractions, reduce stress, and get through the crisis better.
