emergency fund

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photo credit: Bill in Ash Vegas

No one likes to think about the “what ifs” in life. What if one of my parents gets ill? What if I lose my job? What if my spouse leaves me? It’s enough to make you want to crawl under the covers and never come out!

Kevin at No Debt Plan posted recently about how he and his wife deal with the what if questions. He points out that it can be a game of sorts. You can throw in some fun what ifs too. What if we won the lottery? What if I got a raise? What if we went on vacation to Hawaii? This can be a great game to get your head around some of life’s big questions, but it may not prepare you completely.

10 Ways to be prepared In Case of Emergency

#1: Save your money! Personal finance bloggers, writers, and experts tell you to prepare for an emergency is to have an emergency fund. Shocking, I know! I’ve talked about how having an emergency fund has saved us more than once. I look forward to the day when we have ours fully funded. It may not be until 2020, but it’ll be worth it. Most experts are recommending 6 months- 1 year of expenses these days. Only you know what the right number for you is. Remember to just add up the necessary expenses.

#2 Insure yourself.

#2a: Buy health insurance. If you don’t have health insurance you are taking a huge gamble. Health care costs are ridiculously expensive. Yes, you may be healthy, but medical catastrophes can happen to even the healthiest people you know. You could get stuck with MILLIONS of unpaid bills.
#2b: Buy TERM life insurance: If you are young, or have no kids consider buying it now anyhow. Prices are rock bottom in your 20s, and you may have a plan, but life may change before you’re prepared. If you have dependents you absolutely need life insurance, if only enough to help your spouse take care of a funeral and pay off debts.
#2c Buy auto/renter’s and homeowner’s insurance: Protect what you own so in the event of an emergency you don’t have to drain your emergency fund to replace your belongings. You may not care about half your stuff, but it would be nice to have the bsaics covered.

#3 Write a will: It may seem morbid, but it’s worth the small amount you will spend to make sure that your wishes are taken care of in the event of your untimely passing. ESPECIALLY important if you have any assets, dependents, or family treasures. Even singles should consider this, you may want your best friend to inherit your Manolos, or your little brother to inherit your video game collection. If you don’t want to go the lawyer route, try will software like Quicken WillMaker Plus 2009.

#4 Keep copies of important documents/photos offsite: Make copies of your important documents and store them at a friend or family members house or in a safety deposit box. If you choose a person make sure they are reliable and trustworthy. Do NOT choose the guy you are dating, or your sketchy older brother. You could choose to put the items in a lock box and give the key to your lawyer to be handed over if you pass away. If you choose a safety deposit box make sure someone can access it if you are incapacitated or pass away. Items you should copy include:

birth certificates
Social Security cards, visas or other government papers
deeds or leases to your home or rental home
titles to anything you own
wills, trust, and power of attorney documents
marriage certificate and divorce papers where applicable
adoption papers
pet paperwork (microchip info, adoption papers)
vital health records

#5 Create an inventory of belongings: Document all your belonging by taking photos or video of your home. You can also assign values to them by using a simple spreadsheet. There are some great tools available that can make this easier (and more expensive) but I prefer the simple photos, and an accompanying list with approx dollar amounts. iWork ‘09 even has a template for creating a home inventory. Remember to update it yearly or when you purchase something new. You’ll want to store a copy of your inventory offsite.

#6 Create ICE phone numbers: Included in some cells is a space to add an ICE (In Case of Emergency) contact. Put in at least 2 and make sure to update them whenever things in your life or contact info changes. If you have a home phone post them buy your phone.

#7 Create emergency kits: This covers several areas of your life. You need an emergency kit for your car, one for your home, and a small kit to carry in your purse or bag. You may even want to include one in your office drawer. If you or a family member have allergies of any kind find out if you can a prescription for an epi pen. If your allergies aren’t severe consider carrying Benadryl in case of an allergy attack.

A basic kit includes first aid supplies, any medicines you take daily, water, and some form of food (I like Larabar Bars).

A kit for your car is covered really well at MyLifeROI. I would add that if you have young children you want to include:

a change of clothes for each member of the family (include extra undies and diapers/wipes for the little ones)
a blanket for each member of the family (we used older blankets we had lying around in place of the thermal blankets MyLifeROI recommends)
an inflatable potty for the little ones who are potty training
old towels and paper towels for spills
plastic bags
Something to do in case you get stuck like books, dollar store toys, etc. Just make sure they are “new” to your kids.

A kit for your home should include:

bottled water: enough for several days per person
food: good choices are protein bars, canned goods, dry goods like noodles, jars of peanut butter, etc
blankets and warm clothing for cold weather (if applicable), hats and sunblock for warm weather
a first aid kit
medicine you take daily and as mentioned above an epi pen or Benadryl if you or a family member have allergies

#8 Create a go kit: A go kit should include anything and everything you would take with you if you needed to grab a bag and leave your home in less than 5 minutes. Think fire, evacuation, natural disaster, etc. You will include some of the same things above:

water
protein bars, “camping food”, or “astronaut food” (that’s what my kids call it)
first aid kit (including allergy medicine or epi pen)
medicines

You may also want to include:

a hard drive with your backup files and photos
copies of important documents (deed, homeowner’s insurance, SS cards, birth certificates, etc.)
copies of recent photos of each family member
food and medicines for your pet or pets (you can put these in/near their travel carrier)
a place to put valuables like your jewelry (make sure to separate important pieces so you could grab it and go)
a bag to put your laptop computer if you have time to pack it
clothing for a day or two for each person

#9 Create a file with all your important info: You can use a product like Life.doc: Your Life Buttoned Up or create your own, just make sure you save it on your computer and make a copy to keep offsite. Some people use googledocs for this purpose, and share it with trusted family members.

#10 Have a plan: Make a plan for how you would leave your home in the event of a fire or natural disaster. Make a plan for where you would meet if you were evacuated. Write it out so you don’t panic in the event of a real emergency. The hubby and I have a place picked in case we had to evacuate the area as a rendezvous point. We considered that many people will use their cell towers will either be down, or jammed with calls, so having a unspoken plan makes things that much easier.

I learned a lot as a teenager by participating in a practice emergency drill. The drill I partciapated in was a train crash. I learned about triage, and the chaos that is involved in a setting that is large and where lots of people are hurt. Each volunteer received a card at the beginning detailing their injuries and the severity. Some were specific enough that they said you should appear to only have minor injuries, but more symptoms would develop since you had internal bleeding, etc. A friend got to be airlifted in a helicopter since she had severe injuries! I was a bit jealous of that role! If you live in or near a large metropolitan area consider participating in one. It is fun, and extremely helpful to the people who in a real life emergency would work to save you!

A last tip that doesn’t warrant its’ own # is to make sure your vehicle is maintained and has at least a 1/2 tank of gas at all times. That way there is no worrying about how to leave. If you don’t have a car, consider making several plans for how you would evacuate your area.

Do you have any other tips for preparing for emergencies?

Kelly

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If you’re new here, welcome! Please stop by my About Me page, my Media page, and consider subscribing to my RSS feed. You can also follow me on twitter.

photo credit: Mike Schmid

I always think my life has been a prime example of why you need an emergency fund, and this week has been no exception. The first time we set up an emergency fund we had to drain it in the course of a week for emergency repairs to the house and cars.

We have been trying to maintain a $1,000 buffer in our emergency fund. We use a zero-based budget. If you aren’t familiar with them, here is a great link from SimpleMom. It’s pretty easy, you create a budget where $0 is left. The key is to pay yourself first-by automatically transferring your savings before you even see your paycheck. The same day a paycheck arrives a portion is automatically transferred to our savings account at ING. It takes several days for it to become available, and to transfer it back takes an additional 3-4 days. This encourages us to leave it where it is, since it would take 7-10 days to put the money back in our checking account.

Some of our “emergency” expenses would be called non-emergencies by most personal finance experts, but since we are in “ATTACK the debt” mode, I don’t have savings allocated for things like unexpected auto repairs.

Most PF experts would recommend having several savings accounts. If I had the ideal financial setup it would look like this:

Emergency Fund: For us I’d like to cover 3 months expenses in case of job loss, medical emergency, or catastrophe (fire, natural disaster, etc.)
Auto Repair Fund (if you don’t have a car, see below)
Auto Purchase/Replacement fund (if you are getting close to time to replace it or anticipate needing a car)
Home Repair Fund (if you have one) OR Downpayment Fund (for future house purchase)
Vacation and/or Holiday fund
Personal Savings (hubby and I would both have our own accounts for things we want to save for, and surprises for each other)

An emergency for us right now is anything that is not planned for in our budget and is more expensive than the $100 grace that we have in each 2 week period.

The drawback to spending so much towards debt each month is that it leaves us little wiggle room should we have more than one emergency in a 2 week period. (we get paid bi-weekly and usually I pay the bills immediately)

In the past 5 days we have had the following expenses:

$300 for replacement of rear brakes for one of our cars: We had planned for a small amount for the inspection that was due, and minor stuff, but now I know to anticipate a larger bill every time we have the inspections, something ALWAYS seems to come up then.

$135 for a larger suitcase: This happened the night before hubby left for his business trip. His suitcase was overflowing, and it was too late to borrow one from someone else or find a deal on used suitcases at 9pm on a Sunday. I headed to Target and found one that will do the job for this trip and our trip in June, and used $10 worth of coupons.

$300.99 for replacement of back windshield in hubby’s car. He closed the trunk on Friday night and the glass shattered instantly. It is NOT covered by insurance (and is not by most insurance companies I’ve learned-check with yours).

The good news is we have set aside money to cover most of these expenses (our EF was a little low after previous emergencies), the bad news is our EF is now at a whooping $0.

Needless to say paying off debt will be taking a backseat for the next month or more as we build up our emergency fund again. I’m considering adding more to it than my $1,000 minimum. I am thinking about bulking up to $2,500 so theses little emergencies won’t eat up our entire emergency fund.

Once our debts are paid off it will be easier to make these decisions, our cashflow will be much higher, and we could potentially be saving up to 35% of our income each month. But for now, the decisions always seem to be tough since I want to be out of debt completely as soon as possible. Just the idea of it makes my skin crawl!

We should be able to fund the larger emergency fund in the next 2 months. We’re just going to have to make some sacrifices elsewhere to make it happen.

Some folks argue that while you are in debt it makes sense to use credit for emergencies, but I firmly believe having an emergency fund has saved us time and again from having to turn to credit unnecessarily. With money in the bank I can breathe. I can pick up the phone and call the electrician or the AC repairman, or book a flight to see an ill relative without a second thought. With money in the bank I can sleep at night.

Kelly