Strategies to deal with life's surprises
If you lose your job
Unless you have set aside emergency funds, unemployment can be a serious financial blow.
An emergency savings fund can help you pay the bills while you look for another job. The average job search could last six weeks to six months or more.
During that time, you may want to cut your spending as much as possible. You don’t want to rely on your high-interest credit cards to meet routine expenses. Tapping your emergency savings fund can help you avoid more debt and protect your credit history.
Before you receive your final paycheck, consider talking with your employer about:
- Additional compensation that you might be eligible for, such as severance pay, bonuses, or unused sick or vacation days
- The effect on your health insurance, including the cost and duration of continued coverage
- Your choices for the balance in your employer retirement plan account
- Collecting unemployment benefits if you were laid off
You may want to file for unemployment benefits as soon as you can, if you’re eligible. You may be allowed to collect unemployment while you get training for new job skills, depending on the state where you live.
If you divorce
Having an emergency savings fund can help you cope with the legal costs of a divorce. But a breakup brings other changes to prepare for, too. Consider taking these steps when your marriage ends.
- Consider professional advice. You and your spouse will face decisions about splitting up your marital property, including your assets, debt and retirement accounts. For example, any debts incurred during the marriage could be partly your responsibility to repay. Your retirement plan accounts may be divided and paid to an alternate payee, such as your spouse. You may want to hire an attorney who specializes in divorce law to protect your rights.
- Consider reorganizing your accounts. To avoid potential problems, get advice from your attorney about when you can withdraw funds from joint accounts. Then you may want to cancel joint financial accounts, such as savings, checking and credit cards. Maybe open new accounts in your own name. Consider executing a new will and update the beneficiary designations for your insurance policies and retirement plan accounts.
- Take control of your finances. Review how your divorce will affect the way you will save and invest for your future as a single person. If your spouse handled the household’s finances during your marriage, educate yourself on how to plan, save and invest. Your employer’s retirement plan gives you access to financial education and tools on the plan website.
If your health changes
An accident or illness can put a severe strain on your financial resources. Emergency savings can help keep you afloat for the short-term, but you need to do long-term planning in advance, too.
- Consider maintaining health insurance. You and your dependents may need to stay insured at all times. If you’re insured through your employer’s plan and can’t go back to work, find out how you might extend your coverage. Investigate whether a spouse or partner’s employer may be able to cover you and your dependents.
- Make lists. Would your loved ones know who to call if you got hurt or sick? Keep the contact information for your doctors, lawyer, accountant and other advisors updated and in easy reach. What if you couldn’t handle your finances for a while? Store a separate list of where to find your emergency savings fund, retirement plan accounts, online bank and brokerage accounts, passwords and PINs in a safe place so someone else could meet your financial obligations while you are sidelined.
- Protect yourself. You may want to execute health care proxy and durable power of attorney documents to give someone the legal authority to make health care and financial decisions on your behalf if you cannot.
Sudden setbacks happen to everyone, sooner or later. Consider starting or adding to your emergency savings fund now. Then take steps to be financially prepared for anything, including circumstances beyond your control.