Unfortunately, unexpected life events rear their ugly heads without respect to age, gender or ethnic background. It’s the human condition! If we are breathing and actively participating on this earth, we can be guaranteed that we will experience an unexpected life event that will create a financial hardship. It doesn’t matter whether you’re single, married, divorced, male, female, old, young – and I can go on but you get the picture.
While it would seem logical and a “no brainer” that if you’re breathing you might experience an unexpected life emergency, why is it we don’t plan for the unexpected? I’m not aware of many who live in a bubble protected from what I call “life’s suddenlies.” Life is going great, and suddenly a major disruption renders us under financial pressure.
So, what do you do? You simply plan for the unexpected. Plan for the unknown in a way that, although you pray you don’t experience a life suddenly, you’re prepared to navigate through one if it happens.
I experienced my first unexpected life event at the age of 26. I was in a successful career with great advancement potential and was financially stable at this young age, and woke up one day to a “suddenly.”
My father had died unexpectedly leaving behind absolutely nothing for my mother except a small Social Security check and a mortgage she wasn’t going to be able to pay.
This experience devastated my mother emotionally and financially, but with bad news comes amazing good news and life lessons.
My father’s premature death was a wake-up call to me. At the age of 26, I began my journey toward the art and discipline of “planning for the unknown.”
As a radio show host, author, business owner and speaker, I often speak about planning for the unknown and frequently get asked: “How do you plan for the unknown, if it’s unknown?” My response typically is: “You pray for the best and plan for the worst!”
Here are some strategies to help you plan for life’s unexpected emergencies. It is inevitable that you will experience them, but it’s optional whether you will have the discipline and the courage to engage in the most precious discipline of PLANNING!
Steps to prepare for emergencies
Make sure you have an emergency bucket of funds
Many financial experts suggest you have six months of lifestyle costs in the bank as your emergency fund. I’m of the persuasion that you need at least one to two years based on what life stage you’re in.
For example, if you lose your job at 30, then most likely you’ll be able to find a job much faster than if you lose your job at 50 or 60.
You might need to reinvent, re-skill or re-tool yourself to get another job because the industry you have been working in may be downsizing.
You’ll need enough funds for all transition costs. Be thoughtful to include emergency funds for lifestyle maintenance costs such as insurance deductibles and co-payments or other out of pocket costs, and if you’re a homeowner, home maintenance repairs.
And don’t forget pet care and car maintenance.
Know your budget needs for basic lifestyle costs to include paying yourself first
Get a depth of understanding of what your essential needs cost monthly.
Don’t be a victim to spending what you bring in monthly because built into this approach is discretionary spending that your life really doesn’t depend on (like happy hour two to three times a week, or shopping the sales even when you don’t need new clothes or shoes).
Build your budget savings – yes, savings – because you must pay yourself first. Your savings account should be the first bill you pay each pay period.
Make sure you’re properly insured
This means ALL insurance to include your property and casualty, auto, health, life, disability, etc. Most people find out they are “underinsured” at the time of a catastrophic event such as hurricanes or fires, or when they lose a spouse or loved one.
Take an annual assessment of all of your insurance contracts to ensure you are properly insured. Shop around your premiums to make sure that you are getting the most value for the benefits you have in your insurance.
Insured for lost income
Life insurance is the most under-utilized asset class and is the most valuable protection against an unexpected emergency when you lose your spouse, your partner, or significant other.
You should understand your capital needs if you lose income and this is unique to your life situation. As an example, let me speak to the women for a minute!
If you’re married and not the primary wage earner, and you lose your spouse’s income, how will the mortgage get paid or the college education get funded?
How will you generate the income to hold you over until you can re-group your life? I recently met with a 26-year-old woman, mother of four children under the age of 7, who lost her husband in a tragic motorcycle accident.
She ended up with $60,000 group life benefits. That’s it. A term insurance policy of $1 million that cost less annually than the insurance on the motorcycle could have protected this young family.
Get the right kind of life insurance for your unique needs.
Understand ALL benefits you’re entitled to
There are many services available that could offer you benefits in an emergency situation through community resources, churches, non-profits, government, etc.
Know your community resources and take advantage of them as appropriate. They are typical needs based so you’ll want to know what is available as a backup plan.
With military veterans, for example, and based on need, there could be benefits from the Veterans Administration that you could be eligible for based on your or your spouse’s service record.
Have an emergency credit card available
This is a safety valve and is not one that should be carrying a balance from month to month.
Let’s face it, you just may have a true life suddenly and need bereavement expenses that require you to attend a family funeral.
It’s a good practice to use an emergency credit card for this and pay off the expense the next month rather than dipping into your personal emergency account.
I like to consider the emergency financial funds to be for personal life emergencies like lost income, unexpected personal health expenses, etc.
Now, it’s important to recognize that an unexpected life event does not constitute adult children coming back home who need funds from “Parent National Bank” because they need help with student loans, down payments on homes or cars, etc.
If you have minor children, you’ll need to include emergency funds for your minor children. But adult children have much more years of earnings than you most likely have so you’ll need to get really good at exercising the “tough love” muscle.
Life’s unexpected emergencies WILL happen so plan for them using proper money management practices. It’s all about saving and investing the right way.
Regardless of your life stage, it’s critical that you understand that stuff happens in life. And when stuff happens, those who are prepared can handle the life emergency with confidence and maintain emotional, mental, spiritual and financial well-being.
Creating a discipline of planning for the unknown, for the unexpected, is a way to empower yourself financially and emotionally so you don’t end up with finance-induced stress and destroy your health and total well-being.
Remember, prepare for the unexpected……plan for the unknown…..and pray for the best life has to offer you.
About the author: Jeannette Bajalia, the author of Planning A Purposeful Life: Secrets of Longevity, Retirement Done Right and Wi$e Up Women, is president and principal advisor of Petros Estate & Retirement Planning, where she has designed and implemented innovative estate-planning solutions for clients and their families. She also is founder and president of Woman’s Worth® (www.womans-worth.com), which specializes in the unique needs facing women as they plan for their retirement.