Lesson #2.3 What’s Your Emergency Response Plan? (3:45 mins)
We said it in the last lesson, but it’s worth saying it again.
You can’t prepare for everything.
Even if you have 12 months of living expenses if you end up being out of work for 18 months you’re protection attempt can get blown up anyway, leaving you exposed.
Not to mention it’ll take time to save up to those emergency fund levels.
So here’s how to ensure you are protected in the event of any ‘thing’ while you are building your emergency fund, and beyond.
1. Get Insurance
Insurance is meant to protect you from loss or damage on anything that would be too expensive to replace yourself or would be too impactful to replace.
Things like your car, your health and possessions can cost thousands to tens of thousands to repair/replace.
Even if you are a renter – your laptop, clothes, and couch can be very expensive to cover or replace on a moment’s notice.
One way to protect yourself is to have insurance.
PS: Skip insuring things where you can easily replace the item with little or no financial impact – like the $20 insurance plan on a $40 toaster
2. Get a big boy/big girl credit card
Yes, having credit cards can be dangerous when you don’t know how to properly handle them.
But in the event of a ‘REAL’ emergency – the ‘I don’t care how much it costs just save my life’ type of emergency – they can be incredibly helpful to get access to quick funds until your next paycheck.
So you’ll want to invest in a big boy/big girl credit card. This means a card with
A high credit limit
A low fixed interest rate
Ability withdraws funds (cash advance) with very little to no penalty.
This card IS NOT FOR REGULAR USE.
Cards of this nature are usually found at credit unions and usually come with little to no perks, but that’s okay because its benefit comes from being available.
3. Find Your Tribe (Social Capital)
If you had to crash on someone’s couch for a few days who would you call?
Figuring out who your tribe of helpful people who can lend a hand is another way to protect yourself.
Make a list of people – family, friends, church brothers or sisters, whoever – who you can call to help you get out of a bind or when the going gets tough.
Even better if that friend can hook you up with a job or introduce you to some people who can help you.
You know what they say, a good friend is better than money.
4. Locate Resources
Another good way to protect yourself is to know what resources are available to you in case you ever need it.
Your tax dollars pay into resources that you can tap into in an emergency.
Resources like:
Food assistance
Housing assistance
Unemployment assistance
Help paying your bills
Health insurance
Disability assistance
Child care assistance
Military funeral and burial honors
Assistance after a natural disaster etc
Many of these services are government provided but can also be operated by not-for-profit organizations as well. And that’s just if you have an emergency.
You can get help in the following ways as well:
Downpayment assistance to purchase a home
Federal mortgages – USDA, FHA etc
5. Have A Spend Down Plan
You’ve saved the money, but you still need a plan for how you are going to spend it.
So if something does happen, what is your plan?
Are you gonna try and maintain your current lifestyle or are you gonna drop down to your Egg and Cereal budget right away?
How long do you need to be on your current lifestyle budget?
What are the things that you’re going to need to cancel, and in what order, to be able to make your money last as long as possible?
How long will your emergency fund last before it runs out?
Then what?
Are you going to use credit card cards to try and stay afloat? How long are you gonna use credit cards?
How much credit card debt are you willing to get into before making the hard decisions? Eg. asking for help, moving in with your parents if that’s possible.
Basically, if the ‘worst’ were to happen, what would you do?
BOTTOM LINE: Having an emergency backup plan can help you feel more at peace with your situation because you know there is an alternative for when life happens. No matter what it is.
That brings us to the final principle. YOU ARE THE SECRET SAUCE. And we’ll discuss that in the next lesson.