How to Protect Your Finances in Any Emergency

UTC by Osaemezu Ogwu · 12 min read
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Photo: Depositphotos
Photo: Depositphotos

Protecting your finances prior to, and in the face of a pandemic or a natural disaster will ensure you and your family are well taken of. It’ll make you confident during emergencies, and save you from the stress that would’ve impacted on your health negatively.

The future is unpredictable but one thing’s for sure, a booming economy will not always be in an uptrend, while one that is wallowing and struggling may someday experience an uptrend. How then do you prepare for doomsday even while in a healthy economy? We’ll tell you. And if you hadn’t prepared for an emergency like the coronavirus outbreak, is it entirely possible to savor what you have without going back to square one? There definitely is!

For starters, you need to emergency-proof your finances especially if you didn’t do so before this time. It can help you maintain some level of normalcy in your finance, reduce the emotional stress and even ensure that you’re well-positioned to withstand the unforeseen.

Dow Jones Hits Levels Not Seen Since 2008

One financial crisis that sprang up in the stock market is the dip in the Dow Jones Industrial Average. On March 9, 2020, the Dow fell by 700 points with the percentage decline being similar to the stock market crash of 2008.

As such, it was rewritten in history books that the worst stock market days were in March 2020 instead of September 2008. The downtrend was, however, far from over when the Dow suffered a loss of over 1,100 points on March 11, 2020, which is around 20.3% decline from its year’s high. The same downtrend was evident on March 16, 2020, when the losses were 1000 points more.

Coronavirus Outbreak and Oil Price War Impact Financial Markets

On the other hand, these losses could be tied to the coronavirus outbreak across the world. The same could be said about the oil price war between Russia and Saudi Arabia. And more recently, over 6.6 million Americans filed for unemployment benefits as a result of the pandemic. It can, therefore, be said that these events occurred in succession, which could make it difficult for an individual to fend for themselves and their family.

Now, who would’ve thought at the start of the year that a global economy that was looking very promising would be headed for a recession? Very few. Several economists, for instance, have confirmed that the U.S. is already in recession.

Needless to say, you can survive emergencies of this nature better by putting certain things in place. Being prepared provides a seamless way for you to handle a financial crisis and even unexpected medical emergencies that may spring up. And if there’s an earthquake, hurricane, or any other natural disaster, you’ll still be able to support you and your family easily.

Financial Health

Financial health is an important aspect you should consider when trying to ascertain if you’re ready to handle an emergency. It’ll also ensure that you can improve your finance if there are loose ends for losses to occur. Accordingly, great consideration has to be given to your investments, savings, debt, etc. You can improve the health of your finance in the following ways:

Create a Budget and Strictly Adhere to It

It’s quite easy to know the expected income each month, however, it’s often difficult to account for the expenses at the end of the month. The major issue is not getting what’s needful, but still running out of cash. And at the end of the month, you’re left wondering about the uses the money had been put to.

To avert this, set a budget today of all expenses you’ll make even before you make them. Your budget should include the most essential items to ensure you reduce costs to the minimum. You could ask yourself internally if you really need an item, if it is a priority over your financial stability, or if there is another item you could use as an alternative instead of buying a new one.

There are finance management apps that will help you track your expenses. These apps for smartphones and computers provide tools that help you manage your finance easily.

Save

A surefire way to have more money is to save more. Accordingly, part of your budget should include how much you’ll be saving monthly. It could be a certain percentage of your income, which you can survive without. The point is, you want to save an amount that won’t break your wallet or bank. If it does, it will only thwart the purpose of saving in the first place.

Therefore, before you decide to save 10 or 20 percent of your income, consider how it’ll impact your ability to cater for yourself and those you love. If you can save that proportion and still manage easily, then you’ve got a figure you should consistently set aside at the end of the month.

Have a Better Credit Score

Lenders want the confidence that you can make repayments consistently, which is why they will always fall back to your credit score. And in a recession where the level of borrowing may be high, potential borrowers that are more likely to be lent are those with a good credit score.

That being the case, work on improving your credit score especially if it is bad or fair. You can get started by paying your bills on time, setting alerts to ensure you don’t forget any, etc. In line with that, assign the power of an attorney to another individual who will make financial decisions for you if you’re unable to do so due to poor physical or mental health. It may also be useful to reduce your credit card balances in order to save more. If you can, then you’ll have more flexibility in handling emergencies.

Orderly Place Important Documents

In an emergency where you need to dash in and dash out, it’s not the time to turn the whole house upside down just to find your most important files. In case of a flood, fire outbreak, and other disasters, you can quickly pick these documents and make an escape. However, the latter will not be possible if you can’t even remember where your company’s documents, school certificates, or other important documents are.

In line with that, a safe box can be used to store these documents and other valuables. However, a safe deposit box is not always accessible every day, hence, there are documents that should not be placed in it. These documents include your passport, copy of your living will, etc.

Fast Cash

If by this time you’ve not stashed some cash somewhere that can save as an emergency fund, there’s still a way to escape impending financial problems. The same goes if you’ve already begun using your emergency fund and may exhaust it in no time. Some ways to ensure that you’ll still be able to handle your financial responsibilities are:

Sale Kinds of Stuff

You may have old stuff lying around your home, which may still have immense value. They could have been passed down from your parents or grandparents, and as such, are rare and valuable items. Accordingly, you can try putting these items for sale at auction houses.

What’s more, a quick way to raise money fast is to conduct a yard sale. There may be quality items in your garage, which you no longer have a need for, and who knows, someone else may find it worth good cash. Online marketplaces such as eBay are also platforms you can use to promote these items.

Borrow From Family or Friends

If it is entirely necessary and you’re in a fix, then you can borrow from a family or friend. Their terms may be less stringent compared to borrowing from a financial institution. Also, you’ll be funded faster instead of waiting for hours, days, and weeks to be reviewed before you’re finally funded with cash.

On the other hand, it is even more important to put the money you’ve borrowed into good use to ensure you meet your needs and at the same time, payback on time. It is advisable not to use all the money to cover your expenses, but ensure a certain part is generating an income. And to maintain the lender’s level of trust in you, you need to keep your word and make a refund when due.

Make More Money

You may have a job already but if you’re still struggling financially, it may be difficult to keep up with economic downtimes. Therefore, you can work extra hours, ask that your payment be raised, or source for jobs online. The later opens a new world of prospective positions you can fill.

In line with that, there are online jobs such as Blogging, Freelancing, etc, that do not require you to work under anyone. Hence, you get to determine your working hours, which may be most convenient as you work on your current job.

Take a Loan From Retirement Account

It’s possible to take a loan from your retirement account and pay back subsequently with interest. Therefore, you can give it a try and while at it, make an effort to repay on time. There are also risks involved in borrowing from a retirement account, hence, it should be your last resort.

Debt Management

Borrowing may offer an easy way out of your financial problems, but having too many debts is not ideal. Also, it makes it even more difficult to handle an emergency if you already have several debts lined up. Alternatively, there are good and bad debts.

Good debts are those you take to improve your net worth. Take, for instance, borrowing to purchase a home, further education, expand your business, etc. In contrast, bad debt adds little or no value to your net worth. It does not also bring in more income. Therefore, it is always advisable to take a good debt that can bring you more returns in the short or long run.

That aside, if you’re going to borrow to pay your bills, then you can try the following:

  • Use a low-interest loan to refinance a high-interest loan
  • Opt for a debt settlement, where part of your debt can be forgiven
  • Opt for debt relief programs that could help cover your loan

Insurance Coverage

Whether it’s an emergency or not, it is important to insure your life, house, cars, and other belongings against the unknown. And if you already have insurance, it’s proper to review them. The aim is to have the right coverage on each, and modify if need be.

There’s life insurance, for instance, whose aim is to provide funds for your beneficiaries after you pass on. Likewise, your children’s education will be duly funded and other things they’ll need will be provided if you have good insurance coverage. This means that not only can you insure your property, you can also enable your kids to live well in your absence.

On the other hand, falling back on discounts can help you save money on premium insurance. Therefore, call your insurance provider to ascertain if there are any deals you can take advantage of. Who knows, you can get a cut from insuring your car and property at the same time.

Healthcare

Healthcare insurance is just as important to prepare you for emergencies that may occur. It could be a family member or friend, and when such events occur would not be the right time to run helter-skelter. Also, you need a legal authority that will enable another person to make decisions on your behalf in case you’re incapacitated to do so.

Likewise, it is mandated that those over 18 years give written permission to another person to obtain their medical information. This mandate applies even if the person acting on their behalf is their parent or an adult.

Accordingly, having a medical power of attorney in place even before your child becomes unable to decide for themselves, ensures that if an emergency arises, you or another person is in the best position to make decisions for them. Therefore, this assignment is not just for you since you could also ensure that everyone in your household that is at least 18 has a document of this nature in place.

Emergency Fund

An emergency fund can help you fend for yourself for a couple of months. And that’s if you’ve set aside that much to handle your expenses. Asides from what you’ll use daily, you could save more to support you for at least six months. It’s better to have more than living on less with the constant worry that you’ll be unable to fend for yourself. A good way to set up this fund is to save for a year, to ensure you have enough funds. There’s the high-level security that comes with it.

Nonetheless, it is worth pointing out that an emergency fund should be reserved for when there’s an emergency. It is not your goto cash when you’re looking to make yourself happy with a gift or get something flashy. Rather, it should be the fund that bails you out when you’re in dire need of it. It could be to make ends meet if you lose your job, need to cover unexpected medical bills, or you’re unable to work for a long period.

Conclusion

Preparing for an emergency ensures that you and your family are well taken care of. You can live life normally as if things are back to normal. Much more, you avoid the stress and constant fear that could potentially impact on your mental and physical health.

But if you didn’t prepare ahead of time, you can still use the tips outlined above to protect your finances and help you make an income on the sideline. These measures will prove useful especially when you need them.

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