When considering the best way to financial prepare for disasters, it is important to take a two-pronged approach. First, the proper insurance coverage is essential. We covered the different types of insurance that can help in the face of emergencies in this article. Second, an emergency fund can help in the moment that disaster strikes. Here are the different ways to build up a disaster-specific emergency fund:
Assemble your Emergency Financial First Aid KitAn Emergency Financial First Aid Kit, or EFFAK, is outlined by FEMA as an action plan to help families of all sizes prepare for disaster, no matter their household incomes. The introduction to the latest edition of the EFFAK states that a family’s level of disaster preparedness is often related to the size of their income. When a family is wealthier, they set more aside, while a struggling family is not as likely to save for potential tragedies. But it is important for every family to discuss how they will handle emergencies before they occur.
FEMA’s EFFAK takes you through every step of the process. Beginning with four key steps: “Assess and Compile”, “Review”, “Safeguard”, and “Update”, providing checklists and forms, and then guiding you through the best ways to protect your information and other important ways to prepare, this booklet will help your family feel secure that the most important things have been handled. See the most recent version of this free resource here.
Build an Emergency FundFinancial gurus and institutions from Dave Ramsey to Vanguard recommend designating a savings account specifically as an Emergency or “Rainy Day” fund. This account should hold enough money to cover 3-6 months of your family’s expenses. It is important to update this as your lifestyle and family change. What was enough for you before kids will not be after diapers and tuition are added into the budget.
It is also important that all family members with access to the family accounts understand that this account is ONLY for emergencies and is not to be used otherwise. Some financial advisers recommend building a smaller emergency fund first to help with things like a flat tire or quick Urgent Care trip before building the larger fund, but that is something each family will have to decide based on their unique situation.
Be Realistic about your RisksOne final way that families can better prepare financially for emergencies is by being realistic about their individual risks. It may be easy to hear advice about saving a certain amount for house problems or car issues then disregard it because you are currently renting or taking the bus to work. Though you may be exempt from some of the main financial concerns, that does not mean you are free of them all. By realistically assessing the areas of your life where you are the most vulnerable and making specific plans to cover yourself in those areas, you can strengthen your stability where you personally need it the most.
This could mean that you invest in better health insurance since you enjoy higher risk hobbies. It could mean checking the fire safety equipment around your house regularly and investing in proper fire protection. It could mean assigning a trusted friend or relative to hold onto some of your emergency funds for you if you are irresponsible with money. Whatever your specific risks are, covering them ahead makes you that much less likely to face the related disasters in the future.
Check back next Friday for our article on the topic, “Make a Plan to Prepare for Disasters”. We hope this helps you and your family take steps to be a little safer this month!