Are You Prepared for the Unexpected? Security from the Financially Devastating

A friend of mine recently lost her husband. On top of the grief, she suddenly became the head of her household and had to take on duties her husband had before his passing, like paying their mortgage and other bills. Amid her grief, she not only had to learn about all of his assets and become financially literate in a short span of time, but she discovered that her husband had a gambling addiction and that he had accrued some not insignificant amount of debt while he was alive.

I had another friend diagnosed with cancer at 31. This is not only scary but can be financially ruinous; after all, medical debt is the number one reason for declaring bankruptcy in the US.

A third friend had a flood in her brand-new apartment. All of the decor she had meticulously picked out and saved up for was destroyed in the span of hours. She subsequently had to spend 2 weeks in a hotel while repairs happened in the apartment. She was fortunate her parents could take her dog, as boarding fees would have significantly increased her expenses.

A fourth friend came down with an episode of major depression and couldn't work for an extended period of time. She contemplated taking money from her retirement to fund her lifestyle during this period of time during which she would not be paid.

Unforeseen events are a constant threat. Medical emergencies, unexpected deaths, job losses, home catastrophes – the list of potential financial setbacks is long and daunting. Proactive preparation is the key to navigating these challenges and protecting your financial well-being.

Vecteezy.com

Get yourself some Insurance, baby.

I know what you are thinking- insurance is expensive. Do you know what is more costly? Covering whatever insurance could have all on your own.

I still vividly remember the sickening scrape of metal as my friend clipped a pillar with her parents' rental car. We were convinced her dad would unleash a torrent of anger. With trembling voices, we confessed, bracing for the worst. Instead, he smiled and said, 'That's what insurance is for!' The wave of relief was overwhelming. That moment taught me a powerful lesson: insurance isn't just a policy; it's a lifeline against life's inevitable mishaps, preventing a single mistake from becoming a financial catastrophe.

Types of Insurance to Consider

1. Health Insurance: Medical costs can skyrocket—especially in emergencies. A comprehensive health plan may cover expenses that could reach thousands of dollars. For instance, the average hospital stay in the U.S. is around $2,500 per day, making health insurance a vital investment.

   
   

2. Auto Insurance: If you drive, having auto insurance is necessary not only for legal reasons but also for your financial security. In 2020, car repair costs from accidents averaged over $3,000, an expense you might not be prepared for if an accident occurs.

   
   

3. Homeowners or Renters Insurance: This insurance protects your property against loss from theft, fire, or natural disasters. Consider this: 1 in 5 Americans will eventually experience property theft. The right coverage can help you recover swiftly. My friend's rental insurance was able to help her with the hotel bill and replace her belongings!

   
   

4. Life Insurance: While it may not benefit you directly, life insurance can support your family in case of your death. The last thing that you want your family and loved ones to have to do is set up a GoFundMe campaign because they can't pay for your funeral.

   
   

5. Disability Insurance: If you can’t work due to a serious injury or illness, this insurance covers a portion of your income. Studies show that 1 in 4 workers will experience a disability lasting longer than three months during their career, making this coverage critical. The definition of disability is broad and includes physical and mental health conditions. Hot tip: Seek out 'True Own Occupation' disability insurance. This type of policy recognizes the specialized nature of your profession, ensuring you receive benefits if you cannot perform your specific job duties, regardless of your ability to work in other fields.

   
   

The Importance of Emergency Funds

When insurance doesn't cover the costs of an emergency, an emergency fund is crucial for financial security.

Building Your Emergency Fund

1. Determine Your Goal: Aim to save at least three to six months' worth of expenses. This amount provides a substantial cushion during periods of job loss or emergencies.

   
   

2. Automate Savings: Set automatic transfers from your checking account to your emergency fund. Automating your savings helps make it a habit and reduces spending temptation.

   
   

3. Consider High-Yield Savings Accounts: Store your savings in a high-yield account to keep them easily accessible while earning interest, which can boost your emergency fund.

   
   

4. Regularly Review and Adjust: Your financial situation can change. Whether you get a new job or take on a new expense, revisit your emergency fund goals to ensure they are adequate.

Prenups ain't just for the rich.

Prenuptial agreements are often misunderstood. Many assume they only prepare for divorce, but their real benefit lies in establishing clear financial expectations before marriage. Here are some things prenups can achieve...

1. Clarifies Asset Division: A prenup can outline how assets are divided if you separate. This clarity can help both partners move on without bitterness. I know one divorced woman who got 75% of the assets in the divorce because that's what they thought to be fair as she was primarily a stay-at-home mother prior to the divorce. This decision acknowledged the potential difficulties she would face re-entering the workforce, contrasting with her former spouse's established and lucrative career, which he was likely to continue post-divorce. The agreement aimed to recognize the disparity in their future earning potential.

   
   

2. Protects Personal Assets: If one partner has substantial assets entering the marriage, a prenup can keep them separate and secure.

   
   

3. Debt Protection: If your partner has significant debt, a prenup can prevent you from being liable for it, safeguarding your financial stability. Had my friend with the gambling husband had one of these, she would have been spared a lot of stress.

   
   

4. Promotes Open Discussion: Introducing a prenup can lead to meaningful conversations about finances and expectations, fostering better communication in your relationship.

   
   

In a healthy relationship, a prenup should be seen as a smart move for both parties. It is not a sign of distrust but rather a proactive approach to handling financial realities.

Life will give you lemons.

Life is inherently unpredictable, but how you prepare can significantly affect your financial security and emotional well-being. Insurance policies, emergency funds, and prenuptial agreements are essential for building a solid foundation.

Investing time and effort into these areas creates a strong framework for handling life’s unexpected events. By forming smart financial habits today, you can navigate tomorrow's challenges with resilience. With the proper preparations, you can focus on enjoying life, knowing your foundation is secure.