We all prepare for natural disasters by packing an escape bag, putting away supplies and buying insurance. Natural disasters are just a part of the cycle of life. Just as we prepare for them we must also prepare for those times in our lives when disaster strikes our personal finances.
Just like the other protections, we must have insurance (income stream), supplies (cash available to outlast a financial storm) and an escape plan (for when you have no other options). This plan will see not only through natural disasters but through financial and life disasters. Let’s get our plan together.
How do you pack and escape bag for financial disasters. In short what this means is to bring all of your personal and financial life together and having backup copies that you store somewhere safe. Store things like your financial documents also things like photos and videos of your assets in the same safe storage. At first this will seem like an over whelming task but once you have all of your records up to date then it is only a matter of keeping everything current.
Although this is not an exhaustive list it will give you somewhere to start:
· Birth, death and marriage certificates
· Social Security Cards, passports and credit cards
· Medical records, identification (drivers license)
· Recent bank statements, copies of you mortgage(s) and property deeds
· Car titles, insurance policies and insurance contact information
· Three years of the most recent tax returns
· Wills trust and powers of attorneys
· Names and contact numbers of executors, trustees and guardians
· A list of financial advisers along with contact information
· All user id ‘s and passwords
· A household inventory with cost and age along with a description
· Copies of receipts for expensive items and items that hard to replace.
Store these items either in a safe deposit box or in a secure online backup service. If at all possible use both.
Next is to have backup supplies. This will mean to have at least 6 months worth of monthly cash easily available. When your income is destroyed your personal finances are immediately in danger of being destroyed. If you are not prepared it may take up to 10 years to recover.
You should have at a minimum 6 months of income in an account that is readily available. Do not just put 6 months worth of expenses in this account but your full income of 6 months. This way if you have to draw it out to a full year you can lean out your expenses and survive.
Be prepared during this time to take on part time work and odd jobs to keep from using all of your cash on hand because when the crisis is over you will have to replace this cash again.
Finally, how do you have an insurance policy to prevent a personal finance disaster? Create a second income or even a first income that you are in control of and that will continue to provide you income no matter what happens in your life. Learn to invest in yourself and to be in charge of your own destiny.
Today more than ever, you can be a small business owner whether it is something you do part time from home or with an online virtual business. These types of businesses require very little startup capital but do require that you invest time and energy.
Find something that you love to do and can have fun at. If you love it someone else will as well and they will want to know what you know. What better way to weather a storm than doing something you enjoy.
This will also grow your savings and help you to build a retirement plan for later in life when a disaster would be harder to escape. Always think to the future.
To find out more tips on your personal finances and retirement planning and savings planning see the resource box below.