In the wake of Superstorm Sandy wreaking havoc on the south shore, many of us have had to confront challenges we never expected. None of us expected to see water rising around – and sometimes in - our homes the way it did, and certainly none of us looked forward to the cleanup that followed, and is still ongoing.
Unfortunately, one of the major issues that people have been dealing with is financial. Insurance companies have been woefully slow in releasing settlements, FEMA grants have been given or withheld for seemingly arbitrary reasons, and homeowners and residents are left to pick up the pieces.
In my practice at Coastal Financial Services, I have a very simple philosophy: Take control of the things you can control, and try not to worry about what you can’t. How does this bear on post-Sandy recovery?
None of us could control the course of the storm or the amount of flooding and damage our properties received. However, it was possible to be prepared financially for the storm’s aftermath. Whether you had adequate homeowners’ and flood insurance or not (and I will talk about insurance coverage in another article), having access to cash – an emergency fund – helped get the recovery started.
Having an emergency fund allowed some families to get started on cleanup and rebuilding projects without having to wait for settlements from their insurance companies. It allowed for the purchase of portable generators and other supplies to make life in storm wrecked areas easier. And it provided for a sense of financial security for those of us who were unable to work in the aftermath of the storm, for whatever reason.
Of course, natural disasters are not the only reason to keep an emergency fund. Job loss, major illness, or emergency repairs to a home or automobile are all easier to weather when you have the funds set aside to cover just such an emergency. It may be tempting to access credit cards to pay for emergency expenses, but many people who used that strategy after Sandy are now paying back big monthly payments, while still waiting for their insurance settlements. Be careful with credit cards!
How large should your emergency fund be? The answer, as in many things financial, is it depends. Traditional guidelines suggest that you try to have three- to six-months of living expenses in your emergency fund. This would enable you to weather a period of unemployment while still meeting your financial obligations. Of course, with the current state of the job market even six months may not be enough time to find a new job, but every little bit helps.
If you don’t have an emergency fund (or it has been depleted!) how should you go about building one? It is not easy to sock away six months or more of living expenses. But it is easy to get started. Consider a weekly deposit into your emergency fund to be a bill you need to pay, just like any other. Perhaps have the money automatically moved by your bank or financial institution into a separate money market account earmarked for emergencies. What you should not do is borrow the money – and this includes running up credit card debt for living expenses while you are saving. You need to make building up your emergency fund a regular part of your realistic monthly budget, and then stick with it.
Building up an emergency fund is a vital first step to taking control of your financial future. With an emergency fund in the bank, you can spend less time worrying about the things you can’t control – because you know you can handle whatever expenses get thrown your way!
Jesse Lunin-Pack is the Founder and President of Coastal Financial Services, Inc., an independent wealth management and financial advisory practice in Atlantic Beach, New York.
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