This article was published in the New Haven Register on April 30, 2020.
The coronavirus pandemic has raised the consciousness of many Americans when it comes to emergency preparedness. Sales of bulk food supplies and survival gear have exploded, and online searches for the word “prepping” have soared. Our current situation has made people realize what could happen if they suffer a job loss, serious illness, natural disaster, power grid failure or even military attack.
While your 30-day supply of freeze-dried food is on back order, you can take other steps to be ready for a financial emergency, as well. Many people have been caught short by the financial impact of the pandemic and must turn to the government for help. Here are some steps you can take to be ready for the next financial challenge:
Create your own emergency fund. This is a no-brainer. Everyone should have at least three to nine months of living expenses set aside in an accessible account. It doesn’t have to match your current living expenses — you can determine how much money you would need to get by in an emergency and aim for that. Put aside money every month into a savings account or money market fund and leave it there until you’ve reached your goal. Note that this comes on top of putting aside money in your regular retirement savings account. It may take time, so start now! You might consider finding a secondary source of income to fund it.
Set up your own loan source. Homeowners have a natural advantage, the ability to establish a line of credit based on home equity. If you open a line of credit when you don’t need it, it will be easier to obtain a loan when you do need it. Home equity lines of credit generally offer lower interest rates than other loans, and the interest is tax deductible up to $100,000. The downside is you could lose your home if you default.
Get the right insurance for you. Most people have homeowner’s or renter’s insurance and health care insurance, and many have life insurance. You should also consider disability insurance, long-term care insurance and personal liability insurance. With disability insurance, your insurance company will replace some or all of your income if you are injured or disabled and cannot work. Long-term care insurance will pay if an illness or disability requires you to have aides to help you dress, bathe, etc., temporarily or long-term. Personal liability insurance offers more coverage to protect you from losses due to lawsuits as well as home and auto mishaps.
Get your financial house in order. Your ability to handle a sudden emergency situation will be enhanced to the degree that your finances are in good shape. If you’re deep in debt and don’t understand your own expenses, it will be that much harder to cope with a sudden disaster. Here are the basics: First, create and follow a personal financial plan, something a financial planner can help you with. Second, get out of debt and stay out of debt. After that, minimize your monthly and annual expenses, simplify your web of accounts and understand your overall financial picture, keep accurate records, and maintain a good credit score.
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Investment Advisor Representative, Connecticut Capital Management Group LLC, a Registered Investment Advisor. Connecticut Capital Management Group LLC and Connecticut Benefits Group LLC are not affiliated.