Prepare for a Financial Earthquake

Think of a financial shock that could totally knock you off your feet. That’s a financial earthquake. A lock out, an injury, divorce, the death of a spouse, the loss of a home or a business – a financial earthquake is unexpected and unpleasant.

Just like an actual earthquake, the frequency of financial earthquakes can be predicted, but no one knows for sure to whom or when they will occur. Protection against a financial earthquake is not hard, but it does take some allocation of resources to build a strong foundation of emergency savings. While conservative savings aren’t the most exciting part of financial planning, they are the most important.

Emergency Savings — According to a Pew Charitable Trust Study, six in ten Americans had an unexpected, negative financial event during the past year. In a recent Yearly Report on Employee Financial Trends in 2015, Financial Finesse found that 51% of employees do not have enough of an emergency fund to pay bills for a few months if they lose their job. A startling 25% of employees over age 65 had no emergency funds at all heading into retirement. As fellow planner Michael Smith recently wrote, you need a Plan B. If you don’t already have an emergency fund, start by saving a small amount every day by tweaking your spending habits. By saving $5-$10 per day, you could save $1,800-$3,600 by the end of the year. Use this goals calculator to see how little changes can add up to big savings over time.

Income Replacement If You Can’t Work — What happens if your income is interrupted due to an injury or recovery from an accident? Disability insurance provides replacement income in the event you can’t work. Access to group disability insurance as an employer-provided benefit varies by industry, but only 25% of employees have access to both short and long term disability coverage. If you have access to short and long term disability insurance coverage at work, please choose it during your next open enrollment period. If you don’t, consider these factors when shopping for an individual policy.

The probability of any single emergency is low. In total, however, the probability that any one of an assortment of individually unexpected events happening is higher. You may not know when life is going to throw you a loop, but it’s coming. Is it a big one – long term unemployment or a devastating illness? I hope not. Could it be a smaller tremble? Most likely, but will you be prepared?

This post was derived from the Financial Finesse Blog, click here to read the original, full, post to learn about other financial preparations when dealing with a financial earthquake.

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