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Coping With Financial Crises

life emergencies

Life has a way of throwing unexpected financial roadblocks, detours and potholes in our path. These might be large medical bills, car or home repairs, a death in the family, loss of a job, or expensive legal problems. Such financial emergencies can derail your efforts to save for retirement or other goals. Here are some strategies for managing financial crises.

Establish an emergency fund. This can lessen the need to dip into retirement savings for a financial emergency. Building an emergency fund is tough if income is tight, but every few dollars help. Fund it with pay from extra working hours or a temporary job, a tax refund, or a raise. Put the money into a low-risk, accessible account such as a savings account or money market fund. Insure yourself. Insurance protects your financial assets, such as your retirement funds, by helping to take care of the really big financial disasters. Here’s a list of insurance coverage you should consider buying: HEALTH. If you and your family aren’t covered under an employer’s policy, at least try to buy catastrophic medical coverage on your own.

DISABILITY. Did you know you are more likely before age 65 to miss at least 3 months of work because of a disability than you are to die? Social Security Disability Insurance can pay you and your family benefits if you are severely disabled and are expected to be so for at least 12 months. (Worker’s compensation only helps if the disability is work-related.) In addition, your employer may offer some disability coverage, but you may need to supplement it with private coverage. RENTERS. Homeowners usually are insured against hazards such as fire, theft, and liability, but the majority of renters aren’t. Renter’s insurance is inexpensive.

AUTOMOBILE. Don’t drive “bare.” It’s usually against the law to drive without auto coverage, to say nothing of being costly if you are in an accident. UMBRELLA. This provides additional liability coverage, usually through your home or auto insurance policies, in the event you face a lawsuit.

LIFE. Having life insurance can help you or your spouse continue to save if either one of you dies before retirement. Social Security may be able to pay benefits to your spouse and/or minor children. On the other hand, you may not need life insurance if no one depends financially on you. There are many types of life insurance, with a variety of fees and commissions attached. LONG-TERM CARE. This insurance can help pay for costly long-term health care either at home or in a health-care facility or nursing home. It protects you from draining savings and assets you otherwise could use for retirement.

BORROW. If you must borrow because of a financial emergency, carefully compare the costs of all options available to you. Sell investments. It’s usually advisable to sell taxable investments first. Try not to touch your faster growing retirement accounts. Taking money out of your retirement accounts could trigger income taxes and penalties.

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