“31 Days to Financial Independence” is an ongoing series that appears every Thursday on Money360. You might want to start this series from the beginning!
Last time, we examined insurance options along with some strategies for maximizing the value one gets out of their insurance. Now, we’re moving on to a handful of special topics to close out the series, starting with a deep look at emergencies.
Life isn’t always perfect. Unfortunate things happen. A car breaks down before work. A family member falls ill or passes away. You get an unexpected pink slip. Your small business or side gig loses its best client. Your home is flooded or burns down. Those things are part of life sometimes.
The question really isn’t whether crises will happen, but when. Eventually, a loved one will die. Eventually, a client will disappear. Eventually, your car will break down. Eventually, an appliance will fail. It will happen.
There are really two things worth considering when it comes to crises like these.
First, since you know it’s coming, what have you done to prepare for it? What do you have in place so that such emergencies aren’t as devastating? Almost every crisis has something that can be done in advance to reduce the impact when it happens.
Second, when it does happen, what’s your plan? What exactly will you do when that crisis occurs? This step is really about visioning and perhaps adjusting your preparation steps.
It’s well worth your time – and well worth your money – to focus on those questions when it comes to some of the most likely emergencies that you’ll face in life.
Exercise #27 – Preparing for and Responding to Common Crises
Today’s exercise is all about taking those steps with the most common crises. So, one at a time, we’re going to walk through some of the big crises people will face in life and what they can do to set things up so that those crises have the smallest possible personal, professional, and especially financial impact.
Before we get started, though, there’s one overriding tip that will help with almost every single crisis you’re going to face in your adult life: have a healthy emergency fund. If I can recommend one single strategy that will help with all kinds of crises, it’s that one. Simply keep a healthy amount of cash in a savings account so that you can access it and use it when an emergency comes. My recommended strategy is to simply automate a small transfer from your checking account each week into an emergency fund and never turn it off, so that when an emergency happens, you know there’s money waiting for you to help you handle it.
You go into work. Your boss asks to meet with you and informs you that you’re fired. It’s out of the blue. You clean out your desk and your mind races, wondering what’s next. Your biggest income stream is gone. What do you do?
Here are a few steps you can take right now to brace yourself against an unexpected job loss.
First, keep your resume polished at all times. That doesn’t just mean keeping it updated. It means choosing work tasks with an eye toward what would build a killer resume. You’re going to want something that will sell you very well to future employers.
Second, build a strong professional network. Get involved with professional groups, both in your local area, across the country, and online. Build some strong professional relationships within those groups. The more people you have a strong relationship with, the easier it will be to send out feelers and quickly find a new job in your field.
Third, maintain as many positive relationships in your own workplace as possible. Avoid negative talk, especially trashing people behind their back. Avoid conflicts with other coworkers. Be helpful. Don’t “rat people out.” Try to stay on everyone’s good side, and build some very strong relationships with reliable people in your workplace. Yes, there will be some bad apples, but that’s true everywhere.
Finally, cultivate a side gig. Having a side business, whatever it might be, provides another income stream for you. If you lose your main job, then you have something else that’s bringing in at least a little money.
What do you do when a job loss actually happens?
First, apply for any unemployment benefits you may be eligible for. Many jobs offer some sort of unemployment or severance package. Do what you need to do to get your hands on that money.
Second, be incredibly active in terms of getting a new job. Start shopping that resume as soon as possible. Treat finding a new job as if it were your old job. Tap your professional network and see what you can find. Look especially closely at any jobs your professional network comes up with.
Third, tighten up your spending until you’ve landed on your feet. This is the time to go ultra-frugal for a while. The tighter you lock down your spending, the longer you can last without major disaster happening.
Extended Personal Illness
What if you get sick? It’s easy for us to fall back on the comfortable idea of perpetual health, but the truth is that people fall ill all the time. Accidents beset us. Illnesses beset us. Things can happen where we can no longer rely on our health. What do you do if your health fails you?
Here are three preparatory steps you can take.
First, talk to your human resources officer about what to do if you have an extended illness. What benefits are offered by the company? What do you sign up for? What kinds of things are in place if, say, an employee gets cancer? Is that information in your employee contract?
Second, keep an active eye on your health. Go to your doctor for regular checkups. If you notice something that’s awry, ask your doctor. You’re far better off learning about a medical problem when it’s a minor issue before it ever develops into a full-blown crisis. Also, make sure you’re eating a healthy diet and taking care of yourself.
Finally, know the ins and outs of your health insurance plan. Know what your deductible is, what it covers in terms of major illnesses, what happens if your employer tries to terminate you when you’re sick, and what your rights are. You can get answers to most of these questions by simply ing your health insurance provider.
What do you do if you discover you’re sick?
First and foremost, get a second and third opinion. Make sure that there is a consensus on your diagnosis and get that consensus quickly. Doctors often encourage this, because they don’t want to be wrong about a bad diagnosis, either.
Second, learn about life steps you can take to manage symptoms. Follow your doctor’s advice, but go beyond it. Look at tools like improved dietary choices, appropriate exercise, sleeping techniques, and so on that can help you get through the illness.
Also, talk to your employer immediately. Discuss your illness, but also discuss what you’re doing to manage it and recover from it. This is very important if the illness is going to potentially cause you to take an extended leave in the future. Your company is more likely to stick with you if you do what you can to keep them informed and take steps to minimize their negative financial impact.
Death of Friend or Family
Loved ones pass away. It happens. Sometimes it’s expected; at other times, it’s very sudden. When it happens, it often hits you like a wrecking ball. It also can leave you in a situation where emergency travel is warranted.
How can you prepare for this?
First of all, communicate regularly with older and ailing relatives and friends. Don’t give into the belief that they’ll always be there. Call your mom or your dad or your grandma or your aunt and make it a regular thing. Write them letters. Send them texts. Listen to their stories. Visit them. Help them with chores. Stop by their retirement homes. Keep them as an active part of your life, even when it’s inconvenient.
Second, keep a list of people you would need to at work and in your life in the case of a sudden emergency. If your parent died right now, who would you need to call at work? What about child care? What about schools? Keep those numbers on your phone. You might even want to make a checklist of people to call. When such an event happens, you’re going to be upset, so do it now when you’re cool and calm. If you have a spouse, share that list with your spouse so that they can make the calls if needed.
Finally, if you’re an executor on someone’s will, get up to date on what their wishes are. Just have a conversation with them every once in a while so that you’re sure what their wishes are and are prepared to handle what might happen. Ask them if there are any family conflicts that may have to be navigated. Be informed, and take notes on this so you can refer to them later.
When the time comes, it’s probably going to be upsetting and chaotic. Here are three things to keep in mind in such an event.
Make the calls. Don’t just run out the door in an emotional wave. Stop, refer to your list of calls you need to make, and get them out of the way immediately. Don’t make a bad situation worse. Most employers and service providers are very sympathetic if an employee’s parent or grandparent dies, but you still have a responsibility to take care of arrangements as soon as you can.
Call a trusted friend for help. If you’re distraught, lean on a friend right now. Any friend worth anything at all will step up and help you with things like handling travel arrangements, driving you to the airport, and giving you a shoulder to cry on if you need it. This is what friends are for, so rely on them now. There will come a day when you can pay your friend back for this.
Allow yourself to grieve. I am the type of person who bottles these kinds of emotions up until after the event has passed. I become the person who handles things, who is the shoulder for people to cry on at funerals, who speaks at such events. I save my grieving for later. The thing is, I don’t have to be that person. Everyone grieves in their own way, and if your way is to cry profusely or go on a long solo walk or whatever it may be, allow yourself to grieve. If you can, do it communally, so a friend or a family member can help you a little through this process.
Sometimes, businesses fail. It happens. A key client pulls their business (for good or bad reasons). Something happens that destroys your reputation. The market changes and you’re suddenly not making money any more.
Whatever the reason, there are some steps you can take to prepare yourself to survive this kind of failure.
First, and most important, diversify your income streams. If you have a successful business, use some of that money to set up other income streams so that if the main business fails, everything doesn’t fall apart for you. Consider investing that money into other businesses or other investments.
Second, keep your personal skill set sharp. The more skills you have that remain sharp, the more likely it is that you’ll be able to transition quickly to some other line of work. You may even find yourself transitioning into building up a former side business into something bigger. Don’t coast. Don’t let your skills atrophy.
Finally, make sure that there is a clear legal wall between yourself and your company. Make sure that if your business fails, it does not impact your personal finances. There are many ways to do this depending on the exact nature of your business, but make sure that there is a firewall in place.
When your business does fail or is heading in that direction, be prepared to move on.
Cut your losses. It can be hard to emotionally divest yourself from your business, especially if you built it up yourself. Don’t fall into that trap. Trust the numbers and if those numbers point to failure, don’t believe that some miracle will save you. Take action as soon as the picture is clear to minimize the financial damage and perhaps salvage some value.
Don’t make a hasty decision, but don’t drift, either. Spend this time looking at your options, brainstorming about what’s next for you, and keeping your skill set sharp. You may decide that a completely new direction is right for you or you may go along a parallel path to your old one. Give it time, but take the decision seriously and give it focus.
Extract value from your mistakes. Don’t beat yourself up over your missteps, but think about what went wrong and what you can learn from that going forward. What could you do in the future to make sure that history doesn’t repeat itself? There’s real value in that kind of thinking.
You go out to your car before work and it won’t start. It’s not something simple, either. It’s going to be an expensive repair and, even worse, you’ve got to get to work. Now what?
If that sounds like a horrible scenario to you … and it should … here are a few steps you can take to minimize the impact before it ever happens.
First, have an alternative plan to get to work. It might be a bicycle or mass transit. It might be another vehicle, either one you own or one that you can very reliably borrow. It might be Uber. It might be your own two feet. It might be a ride from a friend. Whatever it is, think about that alternative transportation now, rather than when you’re in a panic, so you’ll simply know what to do if things go wrong.
Second, have a trusted mechanic. It’s a good idea to find a mechanic in your area that you trust and that’s reliable. That mechanic will give you a good estimate on what’s wrong with your car and what it’ll cost to fix it, and may be able to provide you with a loaner. Find that mechanic now. Touch base with your social network if you don’t have a good mechanic and then start getting regular maintenance done with that mechanic.
Finally, start a car replacement fund. Even if a car replacement seems years away, start it now. If you put $100 aside each month starting right now, in five years you’ll have more than $6,000. That will allow you to write a check for a decent late model used car (along with your trade-in). $200 a month will get you a very nice vehicle. $300 a month allows you to buy an amazing late model used vehicle. Start this savings plan now, not later, and make it automatic.
When your car does fail, here are a couple steps to follow.
Don’t drop everything to worry about your car. Get to work as normally as you can, then make calls about repairs when it’s more convenient. Your car breaking down is a weak excuse at work; that’s why it’s so often used in scenes in television and film to show an employee that’s heading for thin ice. Your car is not your employer’s problem and you’re gobbling up goodwill by using it as an excuse.
Call around to trusted mechanics for estimates to look at the car. Obviously, with a car that doesn’t start, you can’t just drive it to different mechanics for estimates. If you have a trusted mechanic, you can probably just let that mechanic look at it; otherwise, shop around a little bit.
Home Damage or Destruction
A final disaster that often happens is home damage, whether due to a flood or a fire or an earthquake or a robbery. It’s devastating when it happens, but it can be a lot less devastating with some prep work and with a sound plan for when it happens.
Here are three steps you can take now to minimize the impact.
First, know your homeowners insurance and get sensible optional coverage. Find out what exactly your plan covers and what documentation you need. You should also assess whether you’re in an area where additional coverage for specific disasters is warranted, like tornado insurance or earthquake insurance.
Second, keep all needed documentation about your policy on your phone and/or your safe deposit box. In the event of a home disaster, you’ll want that information somewhere outside of your home. The traditional answer is to keep it in a bank safe, but having such info on your phone is also a good idea. At the very least, keep your policy number and your insurance company’s phone number on your phone.
Finally, have a plan for where you would live in the short term in a disaster. Is there someplace you could reliably stay in an emergency? I have a couple of nearby friends who would happily let us stay with them for a few days in an emergency, and they know they could stay with us, too.
What do you do if disaster strikes?
Call your insurance company as soon as everyone’s safe. You have that policy number and phone number on your phone, right? Call the insurance company and get the process started as soon as possible. (You should probably your employer, too.)
Take pictures. As soon as you can safely do so, start documenting the damage. Take pictures of everything. While an insurance agent will also look at things, you’re going to want as much documentation as possible for yourself.
Secure what remains. Make sure that what remains of your property is secure and document this as well. Obviously, if there’s nothing left, then this is minor, but in the case of flood damage, proving that you took basic steps to secure your property against further damage will help your insurance case.
Next time, we’ll take a look at a major problem that’s rarely addressed in personal finance writing, the “long valley” problem.