Are You Prepared for an Emergency?

Financial tips

Are You Prepared for an Emergency?

Posted by Infinite Wealth Advisors, LLC
7 years ago | May 15, 2017

emergencyAs financial planners, much of our focus falls upon preparing for retirement. But what about financial emergencies? Unexpected situations can happen to anyone, and can take a drastic toll on your financial well-being. You might even feel tempted to take on massive credit card debt during this time, or raid your retirement fund (always a bad idea).

As the old saying goes, an ounce of prevention is worth a pound of cure. Preparing for the possibility of a financial crisis is preferable to scrambling for a solution in a bad situation.

In fact, a recent report by the Federal Reserve highlighted some surprising facts about the economic well-being of American households. An alarming 18 percent faced a financial crisis in 2015, for reasons such as:

  • Health emergencies (36 percent)
  • Lost jobs (25 percent)
  • Loss of spouse’s job (13 percent)
  • Reduction of work hours or pay (18 percent)
  • Reduction of spouse’s work hours or pay (12 percent)

None of these reasons are particularly surprising causes of financial crises, but with the leading cause being medical problems, it’s easy to see that no one is completely “safe”.

The study also analyzed preparedness. When asking respondents how they could cope with an unexpected expense of a mere 400 dollars, 54 percent replied that they have that much cash on hand or could pay off a credit card charge within a month. That’s good news for them… but 47 percent said they would have to sell something or take out a loan. And remember, we’re only talking about 400 dollars here. A more expensive emergency would surely shift those percentages, and fewer people could cope!

Obviously, it’s best to be prepared, just in case any of the above situations ever happen to you. Take these four steps first:

  • Get out of debt
  • Analyze your spending, to see where your money is really going
  • Slash unnecessary expenses, freeing up as much money as you can
  • Put that new cash, along with any windfalls (like your tax refund) into a rainy day fund

We understand that these things are easier said than done. So give us a call if you have any questions about financial planning, and we’ll help you decide which steps to take next.

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