Life rarely hands us glasses of refreshing lemonade. It’s up to us to turn those financial lemons into lessons. They could come by way of large medical bills, car or home repairs, sickness and death in the family, unemployment or global pandemics. These emergencies come out of the blue and pack a punch, forcing you to dip into your retirement savings more than you’d have liked to.
What do you do in times like these?
Plan. Plan. Plan. And the best way to do that is to list down all of your financial options and cross them out one by one as and when you secure each of them. To make your job a little easier, we want to help you tackle the first step.
So here’s our ultimate financial emergency survival checklist with added input from the Department of Labor’s Savings Fitness Guide.
Create an Emergency Fund: Every dollar helps in times of need. It might be a little hard to build an emergency fund if your income is tight, but pool in the extra bucks from working overtime or a temporary job, from a tax refund or a raise, and you’ll have enough to tide you over and cover most of your daily expenses.
Grow Your Money: An even better idea is to take those saved dollars out from under your bed and put them into low-risk, accessible savings accounts or in money market funds. That way, you’ll be able to save and earn interest on your money without credit risk and withdrawal limits.
Insure Yourself: Insurance is a great way to protect your financial assets (like those retirement savings) by helping you out with the big money drainers like health care, death, hospital expenses, auto and home hazards and so on. Get your health, home, motor vehicle(s), and more insured and save your money for those lemons.
Borrow: When push comes to shove, it’s better to borrow than beg or steal. Look at your options carefully and weigh the pros, cons and costs of each.
Sell Investments: Here’s another way to prevent dipping into the “retirement fund cookie jar”. Sell your taxable investments like stocks, bonds, and mutual funds first. Taking money out of your retirement accounts will not only reduce your savings pool but also trigger income taxes and penalties.