May Action Item: Emergency Preparedness (part 1)

Covid-19 is making us acutely aware of the importance of being prepared for a financial emergency. While we usually think of insurance in the traditional sense, the concept of insurance is used throughout preparing for any financial event. Insurance is about protecting against a financial risk. and is a safety net for your financial life.

Traditional insurance policies protect us against certain risks. Here are some of the more common risks:

• Car accident or theft: auto insurance.
• Home event such as fire or theft: homeowners insurance.
• Income loss due to death: life insurance.
• Income loss due to disability: disability insurance.
• Income loss to job loss: unemployment insurance.
• Long term care expenses: long term care insurance.
• Medical expenses: health insurance.

Here’s how the concept of insurance can be applied to almost every facet of our financial lives:

• College planning: provides funding so that your children can attend college & so you don’t have to come up with a lump sum.
• Emergency fund: provides readily available cash in the event of an emergency.
• Estate planning: allows you to legally designate how your assets will be distributed in the event you pass away.
• Family financial meetings: helps you and your family coordinate goals and priorities. If you don’t let anyone know your wishes, and put those wishes in writing, those you leave behind will at best be guessing about how to proceed.
• Identity and credit monitoring: helps to protect your financial assets from identity theft or errors in your credit report.
• Investing: using asset allocation and diversification strategies to maximize returns for a given level of risk (don’t put all of your eggs in one basket).
• Retirement planning: this allows you to be able to replace your income when you stop working.
• Tax planning: helps you minimize your taxes.

Organizing and reviewing your financial life is your insurance policy that you will be prepared in the event of a financial emergency. Putting information into writing makes it a plan. We back up our computer systems in the event of an emergency, so consider backing up your financial life.

A sound financial emergency plan is only as good as the planning and resources that are put into it. Many of us take the time to be prepared, however, just like with a diet, maintenance is the hard part. Changing your financial habits will help maintain your financial health.

- Doug Myrick