Financial preparedness is much more than storing extra cash under your mattress. It’s about creating a plan to help you navigate unexpected financial challenges, which can help you:
- Remain calmer. Knowing that you have a plan to cover immediate needs and recover financially can alleviate stress and anxiety in times of crisis.
- Recover more quickly. Quick access to funds can speed recovery following an emergency or disaster. This can be especially important when a repair or medical attention is urgently needed.
- Prevent debt. Without proper financial preparedness, you might be forced to rely on high-interest credit cards or loans to cover expenses. This can lead to debt accumulation.
Steps to becoming financially prepared
The nonprofit organization Operation HOPE has partnered with the Federal Emergency Management Agency (FEMA) to create the Emergency Financial First Aid Kit (EFFAK). The kit provides lists and forms that enable you to capture and store vital information in categories such as household identification, financial and legal documentation, medical information, and household contacts. Having this information in one place, in a safe and accessible location, will set you on the road to recovery as soon as possible.
Assess and compile
Gather important financial documents and contacts and complete all EFFAK forms. Be sure that you have original versions of your documents; otherwise, reach out to the proper agency to request a copy.
Keep cash handy
Store cash in different denominations in a safe location where you’ll keep your EFFAK forms. In case ATMs aren’t working or banks are closed, you should have enough money (at minimum) for gas, food, and other daily necessities. Think about how many days or weeks during a crisis you’d like to sustain your current lifestyle and keep enough cash on hand for that period.
Review key financial documents
Go over your insurance policies and financial paperwork to ensure that they remain accurate and current. This includes verifying that your current homeowners’ insurance, auto insurance, and/or renters’ insurance policies are up to date.
Store documents safely
Store paper copies of your documents in a fireproof and waterproof box or safe, in a bank safe deposit box, or with a trusted friend or relative. If you’re using a safe deposit box, you may want to confirm who can and cannot access the safe deposit box if the owner dies or cannot access it due to illness. Electronic copies of important documents should be stored in a password-protected format on a removable flash drive or external hard drive in your fireproof and waterproof box or safe.
Update as needed
Revisit your EFFAK on a regular basis to determine whether any information needs updating. Suggested times to review it include tax preparation time, the beginning or end of daylight saving time, your birthday, and the start of a new year. Any of the following events should prompt you to change your EFFAK as soon as possible:
- Change of insurance
- Change of residence
- Purchase of new home or rental of new apartment
- New bank account
- Change in marital status
- Birth or adoption of child
- Change in your child’s school
- Retirement planning
- Death in household
You may want to provide your lawyer, financial advisor, or trusted family member or friend with a paper copy of your EFFAK in a sealed envelope. Provide instructions that they should open the envelope only with your approval or the approval of someone you have chosen in the event you cannot make decisions on your own.
Hopefully you’ll never find yourself in a situation where you need to reference these tips, but it’s best to be prepared.
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David Jaeger is a financial advisor at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or email@example.com
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