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Planning for an emergency can be tough — until it happens, you’ll almost never know exactly what you need. But with your money, there are some basic ground rules for emergency planning, and if you’ve followed them, you’re likely pretty well-prepared.
In fact, you might be better prepared than you even though you could be. Here are four signs that your planning has put you in a position to make it through the worst.
1. You have a substantial emergency fund
In the event of job loss or a medical emergency, you can lean on your emergency fund, which most people want to cover three to six months’ worth of basic living expenses. If you’re truly prepared, you’ve bulked it up.
Personal finance expert and author of “I Will Teach You To Be Rich” Ramit Sethi is advising people not to stop at three to six months worth of expenses — he’s suggesting 12 months. In a ‘fireside chat’ to followers on Instagram, Sethi said, “Now more than ever I believe that having that one-year security is really important,” amidst expert recession predictions and tumult ous markets.
If your emergency fund has three to six months’ worth of expenses, you’re probably in good shape. If it has reached the 12-month mark, you might be better prepared than the typical person.
2. You have an asset you could borrow against if you need to
If you need to borrow money during an emergency, having an asset to borrow against could save you from the big cost of a personal loan, the high-interest rates of credit cards, or long-term losses from borrowing from your 401(k).
Things like home equity loans and home equity lines of credit make borrowing cheaper by using your home as collateral. These types of loans and lines of credit are often much cheaper than a personal loan.
While having an emergency fund could keep you from needing to borrow in the first place, having these options can be a backup safety net. If you do need to borrow money, having this type of asset behind you could make it cheaper.
3. You’re not worried about finding insurance coverage
In a global health crisis like the coronavirus, having the right life insurance and health insurance can bring big peace of mind, both financially and personally.
Many people are scrambling to get life insurance coverage in the wake of the coronavirus. Life insurers are seeing big upticks in applications for term life insurance policies, the most popular and affordable type of life insurance. Many people who often would put off signing up for a policy are finally making the jump. If you already have your coverage in place, you’re one step ahead.
4. You’re able to stay the course with your financial goals
If you’re not worried about being able to continue saving or investing, you’ve probably set yourself up to weather the storm with ease. Whether it’s saving for retirement or building a down payment on a home, your goals shouldn’t change just because the economy did.
If you’re well-prepared, you’re not thinking too emotionally about your money, either: Now isn’t the time to sell off investments or make sudden changes out of fear. Keep saving, investing, and working towards those goals, and you’ll be prepared to make it through the downturn.