If you disaster proof your finances now, you’ll be prepared for financial emergencies in the future.
The COVID-19 situation has highlighted the fact that most people are NOT financially healthy enough to weather a disaster, either a personal one or global one. This pandemic is unique in that we’re all going through a similar financial emergency together. What isn’t unique about it is that all of us will encounter multiple financial emergencies or outright disasters throughout our lives.
If you’re financially prepared for a disaster, you’re still concerned right now. But you’re not panicked or fearful. Once we come out the other side of this – which we will – I want you to use this experience as motivation to disaster-proof your finances for the future.
Here’s How to Disaster Proof Your Finances
Practice Financial “Situational Awareness”
If you’ve taken a self-defense or personal safety class, you’ve heard of situational awareness. It’s scanning your environment, noticing what’s going on around you, so you’re not caught off guard by potential danger. Being oblivious or distracted might get you mugged in the wrong part of town. Being clueless about the state of your money will have you in full on panic mode when financial disaster strikes.
Here’s what you should be aware of relative to your finances: the current value of your assets (cash, bank balances, investments, property, and other valuables), your current level of debt, and how much you’re spending every month.
Put It in Action: Download a money management app like AskZeta to help you practice financial situational awareness with ease.
Stockpile Emergency Savings
An adequate emergency fund is like a warm blanket during a “financial winter.” I recommend everyone have six months of their household expenses in a savings or money market account. If you’re self-employed, you might want to increase that to 12 months of expenses. Don’t be concerned so much about the rate of return on your emergency savings, because it’s not an investment. Don’t rely on credit cards as your emergency plan. Creditors can reduce your credit limit whenever they want to for any or no reason. A friend recently confessed that her bank reduced her Visa’s credit limit from $9,000 down to $1,000 because an old, unpaid medical bill popped up on her credit report.
Put It in Action: Open an online savings account if you don’t already have one. Set up automatic transfers into it weekly or monthly. Start small if you need to, even $5 or $10 a week.
Keep Your Debt Levels in Check
It’s okay to have a credit card, car loan, or mortgage, so long as your debt level isn’t crushing you. I recommend carrying as little debt as possible, because you never know when your income could take a turn for the worse. You might be able to comfortably carry your debt with your current income, but what happens if you lose your job or your business takes a hit?
Put It in Action: Tally up your current level of debt and the amount of your monthly payments. Do you feel comfortable with it? What if your income dropped by 30% or more? Could you still make the payments?
Be Vigilant with Your Spending
When spending is out of control, it’s like pouring your precious water on the ground in the desert. You’re wasting your most important wealth building asset: your income. Practicing situational awareness around your spending with a money app will unmask categories that are out of line. Just being aware of how much your spending in a certain area can help you course-correct and make better decisions in the moment.
Put It in Action: Examine how much your spending on certain categories. Is this in line with what’s important to you and your family? What can you trim back or eliminate?
Raise the Shields of Insurance
Insurance is a tool that removes financial risk you’re not willing or able to take. I know, like most people, you probably hate paying for it. However, if you’ve ever made a large claim on your auto or homeowners’ policy, you know the relief of having it. Talk with your financial professional and see what insurance gaps you have to fill.
Put It in Action: Make an appointment with your financial professional to talk about your potential insurance needs.
Develop Emotional Invincibility
Disaster proofing your finances if partly about the money and partly about the mindset. Creating and keep a positive money mindset is not a one-and-done deal. It’s something you’ll always need to pay attention to. Today’s society thrives on panic, scarcity, and sensationalism. If your mindset isn’t strong, you’ll be swept along on a tidal wave of fear.
How do you develop emotional invincibility? I learned how to do this from Hal Elrod, in his book, The Miracle Equation.
Here’s how it works:
- When something upsetting happens, set the timer on your phone for 5 minutes.
- You can rant, rave, scream, or cry during that 5 minutes.
- Once the timer goes off, stop what you’re doing and say out loud, “Can’t change it!”
- Now, put your effort and energy into something you can improve or go relax and enjoy yourself.
It’s been a year since I learned the principles of developing emotional invincibility. It’s rare that something gets me emotionally upset, and I don’t even need to set my phone timer anymore! It doesn’t matter if it’s 20-minute hold time on the customer service line, a delay of my flight home from vacation, or a coaching client who cancels out of the blue. It’s just a blip on my emotional radar. I take a deep breath, and think to myself, “I can’t change this, so I refuse to be upset about it. How can I make the best of this situation?” Trust me, it takes a lot of practice on the little things before you become unflappable for the big things.
Put It in Action: Start practicing the steps to develop emotional invincibility now.
Disaster-proofing your finances is a process. You’re not going to get it accomplished in a day, a week, or even a month. Pick several of the action items I mentioned and put them on your calendar to start the process NOW. Your future self will thank you!